TIDMBGEO

RNS Number : 9467I

Bank of Georgia Group PLC

14 August 2019

Bank of Georgia

Group PLC

2(nd) quarter and half-year 2019 results

Name of authorised official of issuer responsible for making notification:

Natia Kalandarishvili, Head of Investor Relations and Funding

www.bankofgeorgiagroup.com

ABOUT BANK OF GEORGIA GROUP PLC

The Group: Bank of Georgia Group PLC ("Bank of Georgia Group" or the "Group" - LSE: BGEO LN) is a UK incorporated holding company, the new parent company of BGEO Group PLC. The Group combined a Banking Business and an Investment Business prior to the Group demerger on 29 May 2018, which resulted in the Investment Business's separation from the Group effective from 29 May 2018.

The Group comprises: a) retail banking and payment services and b) corporate and investment banking and wealth management operations in Georgia, and c) banking operations in Belarus ("BNB"). JSC Bank of Georgia ("Bank of Georgia", "BOG" or the "Bank"), the leading universal bank in Georgia, is the core entity of the Group. The Group targets to benefit from superior growth of the Georgian economy through both its retail banking and corporate and investment banking services and aims to deliver on its strategy, which is based on at least 20% ROAE and c.15% growth of its loan book.

2Q19 AND 1H19 RESULTS AND CONFERENCE CALL DETAILS

Bank of Georgia Group PLC announces the Group's second quarter and the first half of 2019 consolidated financial results. Unless otherwise noted, numbers in this announcement are for 2Q19 and comparisons are with 2Q18. The results are based on International Financial Reporting Standards ("IFRS") as adopted by the European Union, are unaudited and derived from management accounts. This results announcement is also available on the Group's website at www.bankofgeorgiagroup.com.

An investor/analyst conference call, organised by the Bank of Georgia Group, will be held on, 14 August 2019, at 14:00 UK / 15:00 CEST / 09:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.

 
 Dial-in numbers:                    30-Day replay: 
 
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  ID: 6363857                         ID: 6363857 
  International Dial-in: +44 (0)      International Dial in: +44 (0) 
  2071 928000                         3333009785 
  UK: 08445718892                     UK National Dial In: 08717000471 
  US: 16315107495                     UK Local Dial In: 08445718951 
  Austria: 019286559                  USA Free Call Dial In: 1 (866) 
  Belgium: 024009874                  331-1332 
  Czech Republic: 228881424 
  Denmark: 32728042 
  Finland: 0942450806 
  France: 0176700794 
  Germany: 06924437351 
  Hungary: 0614088064 
  Ireland: 014319615 
  Italy: 0687502026 
  Luxembourg: 27860515 
  Netherlands: 0207143545 
  Norway: 23960264 
  Spain: 914146280 
  Sweden: 0850692180 
  Switzerland: 0315800059 
 

CONTENTS

 
 4    2Q19 and 1H19 results highlights 
 
 6    Chief Executive Officer's statement 
 
 8    Discussion of results 
 
 12   Discussion of segment results 
 12         Retail Banking 
 16         Corporate and Investment Banking 
 
 19   Selected financial and operating information 
 
 24   Principal risks and uncertainties 
 
 31   Statement of Directors' responsibilities 
 
 32   Interim condensed consolidated financial statements 
 33         Independent review report 
 35         Interim condensed consolidated financial statements 
 42         Selected explanatory notes 
 
 70   Glossary 
 
 71   Company information 
 

FORWARD LOOKING STATEMENTS

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Bank of Georgia Group PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; regional instability; loan portfolio quality; regulatory risk; liquidity risk; operational risk, cyber security, information systems and financial crime risk; and other key factors that indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports of the Group, including the 'Principal risks and uncertainties' included in Bank of Georgia Group PLC's Annual Report and Accounts 2018 and in this announcement. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in Bank of Georgia Group PLC or any other entity within the Group, and must not be relied upon in any way in connection with any investment decision. Bank of Georgia Group PLC and other entities within the Group undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

HIGHLIGHTS(1)

Continued strong profitability and balance sheet growth, supported by outstanding capital and liquidity positions

 
                                                           Change              Change                        Change 
GEL thousands                            2Q19       2Q18    y-o-y       1Q19    q-o-q       1H19       1H18   y-o-y 
Banking Business Income Statement 
 Highlights(2) 
Net interest income                   181,622    186,582    -2.7%    182,941    -0.7%    364,563    366,831   -0.6% 
Net fee and commission income          43,267     37,847    14.3%     42,180     2.6%     85,447     72,357   18.1% 
Net foreign currency gain              36,700     25,000    46.8%     30,025    22.2%     66,724     39,252   70.0% 
Net other income / (expense)          (4,260)      3,705      NMF      3,568      NMF      (691)      9,451     NMF 
Operating income                      257,329    253,134     1.7%    258,714    -0.5%    516,043    487,891    5.8% 
Operating expenses                   (98,558)   (93,144)     5.8%   (91,927)     7.2%  (190,485)  (180,523)    5.5% 
Profit from associates                    254        376   -32.4%        188    35.1%        442        695  -36.4% 
Operating income before cost 
 of risk                              159,025    160,366    -0.8%    166,975    -4.8%    326,000    308,063    5.8% 
Cost of risk                         (35,476)   (37,526)    -5.5%   (42,652)   -16.8%   (78,129)   (71,340)    9.5% 
Net operating income before 
 non-recurring items                  123,549    122,840     0.6%    124,323    -0.6%    247,871    236,723    4.7% 
Net non-recurring items               (2,538)   (13,763)   -81.6%    (1,575)    61.1%    (4,112)   (16,711)  -75.4% 
Profit before income tax expense 
 and one-off costs                    121,011    109,077    10.9%    122,748    -1.4%    243,759    220,012   10.8% 
Income tax expense                    (9,871)    (5,461)    80.8%   (10,536)    -6.3%   (20,407)   (14,744)   38.4% 
Profit adjusted for one-off 
 costs                                111,140    103,616     7.3%    112,212    -1.0%    223,352    205,268    8.8% 
One-off termination costs 
 of former CEO and executive 
 management (after tax), one-off 
 demerger related expenses 
 (after tax) and one-off impact 
 of re-measurement of deferred 
 tax balances                         (3,996)   (52,541)   -92.4%   (10,240)   -61.0%   (14,236)   (52,541)  -72.9% 
Profit                                107,144     51,075   109.8%    101,972     5.1%    209,116    152,727   36.9% 
 
 
GEL thousands                                   Jun-19       Jun-18   Change       Mar-19   Change 
                                                                       y-o-y                 q-o-q 
Banking Business Balance Sheet 
 Highlights 
Liquid assets                                4,537,545    4,266,417     6.4%    4,502,390     0.8% 
    Cash and cash equivalents                  936,106    1,546,863   -39.5%    1,162,168   -19.5% 
    Amounts due from credit institutions     1,704,701      993,862    71.5%    1,391,630    22.5% 
    Investment securities                    1,896,738    1,725,692     9.9%    1,948,592    -2.7% 
Loans to customers and finance 
 lease receivables(3)                       10,579,710    8,108,647    30.5%    9,570,691    10.5% 
Property and equipment                         358,921      313,627    14.4%      349,728     2.6% 
Total assets                                16,133,999   13,239,336    21.9%   15,054,569     7.2% 
Client deposits and notes                    8,855,616    7,174,234    23.4%    8,393,861     5.5% 
Amounts due to credit institutions           2,960,519    2,740,595     8.0%    2,463,408    20.2% 
    Borrowings from DFIs                     1,253,921    1,161,120     8.0%    1,309,976    -4.3% 
    Short-term loans from NBG                1,001,496      556,834    79.9%      585,797    71.0% 
    Loans and deposits from commercial 
     banks                                     705,102    1,022,641   -31.1%      567,635    24.2% 
Debt securities issued                       2,137,239    1,527,452    39.9%    2,045,428     4.5% 
Total liabilities                           14,215,780   11,571,671    22.8%   13,135,789     8.2% 
Total equity                                 1,918,219    1,667,665    15.0%    1,918,780     0.0% 
 
 
Banking Business Key Ratios              2Q19     2Q18     1Q19    1H19    1H18 
 
ROAA2                                    2.9%     3.1%     3.1%    3.0%    3.2% 
ROAE(2)                                 22.9%    25.4%    24.5%   23.7%   25.7% 
Net interest margin                      5.4%     6.9%     5.8%    5.6%    7.0% 
Loan yield                              11.8%    14.0%    12.2%   12.0%   13.9% 
Cost of funds                            4.8%     5.0%     4.8%    4.8%    4.9% 
Cost / income(4)                        38.3%    36.8%    35.5%   36.9%   37.0% 
NPLs to Gross loans to clients           3.2%     3.4%     3.3%    3.2%    3.4% 
NPL coverage ratio                      88.1%    99.4%    92.2%   88.1%   99.4% 
NPL coverage ratio, adjusted 
 for discounted value of collateral    131.5%   142.8%   132.6%  131.5%  142.8% 
Cost of credit risk ratio                1.3%     1.6%     1.7%    1.5%    1.7% 
NBG (Basel III) Tier I capital 
 adequacy ratio                         13.3%    12.5%    12.7%   13.3%   12.5% 
NBG (Basel III) Total capital 
 adequacy ratio                         16.7%    17.5%    17.1%   16.7%   17.5% 
 

(1) On 29 May 2018, the demerger of Bank of Georgia Group PLC's Investment Business to Georgia Capital PLC became effective. The results of operations of the Investment Business prior to demerger, as well as the gain recorded by the Group as a result of the Investment Business distribution are classified under the "discontinued operations". The Group and Banking Business detailed financials, as well as Discontinued Operations and inter-business eliminations for previous periods are presented on pages 19 and 20. Throughout this announcement, the discussion is focused on the Banking Business results, which represents the continuing business of the Group since the demerger

(2) The income statement adjusted profit excludes GEL 4.0mln in 2Q19 (1Q19: GEL 10.2mln) and GEL 14.2mln in 1H19 one-off employee costs (net of income tax) related to former CEO and executive management termination benefits. The amount is comprised of GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 4.0mln (gross of income tax) excluded from non-recurring items in 1Q19 and in 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 52.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances. ROAE and ROAA have been adjusted accordingly for all periods presented. Full IFRS income statement is presented on pages 19 and 20. Management believes that one-off costs do not relate to underlying performance of the Group, and hence, adjusted results provide the best representation of the Group's performance

(3) Throughout this announcement, the gross loans to customers and respective allowance for impairment are presented net of expected credit loss (ECL) on contractually accrued interest income. These do not have an effect on the net loans to customers balance. Management believes that netted-off balances provide the best representation of the Group's loan portfolio position

(4) Cost/income ratio adjusted for GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

KEY RESULTS HIGHLIGHTS

-- Strong quarterly performance. Profit adjusted for one-off costs totalled GEL 111.1mln in 2Q19 (up 7.3% y-o-y and down 1.0% q-o-q) and GEL 223.4mln in 1H19 (up 8.8% y-o-y), with profitability remaining high at 22.9% and 23.7% ROAE(5) in 2Q19 and in the first half of 2019, respectively

-- Strong asset quality. The cost of credit risk ratio improved to 1.3% in 2Q19 (down 30bps y-o-y and down 40bps q-o-q) and to 1.5% in 1H19 (down 20bps y-o-y). NPLs to gross loans ratio was 3.2% at 30 June 2019, while the NPL coverage ratio was 88.1% and the NPL coverage ratio adjusted for discounted value of collateral was 131.5%

-- Loan book growth reached 30.5% y-o-y and 10.5% q-o-q at 30 June 2019. Growth on a constant-currency basis was 19.1% y-o-y and 6.4% q-o-q. Retail Banking loan book share in the total loan portfolio was 67.2% at 30 June 2019 (70.3% at 30 June 2018 and 70.0% at 31 March 2019)

-- Strong capital position. Basel III Tier 1 and Total Capital Adequacy ratios stood at 13.3% and 16.7%, respectively, at 30 June 2019, both above the minimum required level of 11.6% and 16.1%, respectively. Common Equity Tier 1 (CET1) ratio stood at 11.0%, compared to a 9.6% minimum requirement at 30 June 2019. In March 2019, JSC Bank of Georgia issued an inaugural US$100 million 11.125% Additional Tier 1 Capital Perpetual Subordinated Notes, with regulatory approval on the classification of these securities as Additional Tier 1 instruments received in April 2019

-- Retail Banking ("RB") continued to deliver solid net interest income, coupled with strong net fee and commission income generation during the period. The Retail Banking net loan book reached GEL 6,771.2mln at 30 June 2019, up 25.1% y-o-y and up 6.0% q-o-q. The growth was predominantly driven by mortgage and MSME lending. At the same time, the RB client deposits increased to GEL 4,987.6mln at 30 June 2019, up 43.3% y-o-y and up 10.3% q-o-q

-- Corporate and Investment Banking ("CIB") demonstrated strong growth in 2Q19, generating solid net interest income and net fee and commission income, coupled with operating efficiencies and strong asset quality. CIB's net loan book reached GEL 3,208.8mln at 30 June 2019, up 42.6% y-o-y and up 21.0% q-o-q. The growth on a constant-currency basis was 25.3% y-o-y and 14.7% q-o-q. The top 10 CIB client concentration was 9.1% at 30 June 2019 (10.2% at 30 June 2018 and 9.1% at 31 March 2019)

-- Assets Under Management ("AUM") within the Group's Investment Management business, increased to GEL 2,504.3mln in 2Q19, up 25.6% y-o-y and up 5.6% q-o-q, reflecting an increase in client assets and bond issuances at Galt & Taggart, our brokerage subsidiary

-- Dollarisation of the loan book and client deposits. Loan book in local currency accounted for 39.9% of the total loan book at 30 June 2019 (41.7% a year ago and 39.3% in the previous quarter). Client deposits in local currency represented 31.4% of the total deposit portfolio at 30 June 2019 (37.9% a year ago and 32.9% in previous quarter)

-- Digital channels. We have actively continued the further development of our digital strategy:

-- The Bank continued introducing new features to our mobile banking application and our internet bank and introducing dedicated digital spaces in our branches to incentivise offloading client activity to digital channels. As a result, the number of active internet and mobile banking users, as well as the number and volume of transactions through our mobile and internet banking continued to expand. In total, c.93% of daily banking transactions were executed through digital channels in 1Q19 and 2Q19

-- In 1Q19, the Bank released a brand new business internet banking platform (Business iBank) for MSME and corporate clients, which comes with many features designed to make its use an intuitive and smooth experience. We focused our efforts on making the Business iBank even more useful for business transactions, which should further incentivise offloading client activity to digital channels. As a result, we already saw significant increase in number and volume of transactions through new Business iBank in 2Q19 (up 33.8% and up 11.3% q-o-q, respectively). c.89% of daily banking transactions were executed through internet bank in 2Q19

-- In 1Q19, the Group launched a cutting-edge full-service real estate digital platform, area.ge. The platform is unique on the Georgian real estate market and is the first platform to be fully integrated with the Bank to provide its users a "one-click" live credit limit appraisal and mortgage application experience. The Group aims to boost its mortgage portfolio by gaining access to a new clientèle, and simultaneously offering value-added services to real estate developers and agencies. At 30 June 2019, more than 535,000 unique users and 527 developers were registered, and more than 3,800 mortgage leads have been generated through the platform, and disbursed mortgage loans amounted to more than GEL 6mln since the launch

-- In 2Q19, the Group acquired a leading Georgian e-commerce platform, extra.ge. The Platform facilitates consumer-to-consumer (C2C) and business-to-consumer (B2C) sales through its website and social media channels. Currently, extra.ge had c.350,000 returning visitors per month. Around 80,000 registered buyers and sellers and c.100,000 products and services are listed on extra.ge. The clients will be able to access their Bank of Georgia banking products in a fully integrated way: extra.ge will be integrated with the Bank's current flexible single sign-on and payment system and will offer the Bank's pre-approved instant installment loans to enable its customers to purchase selected products. Bank's retail and MSME clients will enjoy the excellent opportunities of a new consumer experience and doing business in a dynamic and flexible digital marketplace

-- In July 2019, Bank of Georgia signed an agreement with Public Service Hall over the next three years, whereby we gained the right to provide transactional services to c.4.3 million clients served annually by Public Service Hall throughout 23 locations in Georgia

(5) 2Q19 and 1H19 ROAE adjusted for GEL 4.0mln and GEL 14.2mln one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management, respectively

CHIEF EXECUTIVE OFFICER'S STATEMENT

In the first half of 2019, the Group delivered another period of strong balance sheet and fee and commission income growth, which has continued to deliver superior profitability. Over the last 12 months, customer lending has increased by 30.5%, supported by 10.5% customer lending growth in the second quarter of 2019, which demonstrates the strength of the Bank of Georgia franchise. In addition, we have continued to build our fully integrated digital capacity; we improved our already strong capital position with the issuance of US$100 million Additional Tier 1 capital notes, and strengthened our executive management team. At the same time, the Bank has successfully adopted a significant tranche of local regulatory changes and the Georgian economy has continued to deliver strong macro-economic growth, despite some regional uncertainties.

Net profit for the first half of 2019 totalled GEL 209.1 million, despite the impact of GEL 14.2 million of one-off employee costs (net of income tax) related to termination benefits of former CEO and executive management members. Adjusting for these and other 2018 demerger related costs, net profit increased by 8.8% year-on-year to GEL 223.4 million, and the return on average equity was 23.7%. On the same basis, during the second quarter, the Group delivered profit of GEL 111.1 million, up 7.3% year-on-year, reflecting both strong customer lending growth and double-digit growth in fee and commission income.

During the first half of 2019, we actively continued the further development of our fully integrated digital strategy, an important focus for us as we continue to digitise our full banking platforms:

-- Introducing new features to our mobile banking application and introducing dedicated digital spaces in our branches. As a result, the number of active mobile banking users reached 418,155 at 30 June 2019, up 82.6% year-on-year and up 9.4% quarter-on-quarter;

-- Releasing a brand new business internet banking platform (Business iBank) for our MSME and corporate clients in 1Q19. As a result, we already saw a significant increase in the number and volume of transactions through new Business iBank, up 33.8% and up 11.3% quarter-on-quarter, respectively, in 2Q19;

-- Launching a cutting-edge full-service real estate digital platform, area.ge, that is unique in doing business in the Georgian real estate market. This is the first platform to be fully integrated with the Bank to provide users with a "one-click" live credit limit appraisal and mortgage application experience; and

-- Acquiring a leading Georgian e-commerce platform, extra.ge, that facilitates consumer-to-consumer and business-to-consumer sales through its website and social media channels

From a macro-economic perspective, Georgia's economic performance remained strong in 2Q19 with an estimated 4.9% growth, rising reserves and improved external balance. Goods exports, remittances and tourism all posted increases in the second quarter, while imports continued to decline. Government infrastructure spending accelerated, but the fiscal deficit is projected to remain below 3% of GDP in 2019 reflecting the Government's emphasis on containing current spending. Annual inflation was 4.3% in June 2019, mostly reflecting the increase in excise tax on tobacco (excluding this one-off, inflation stood at 3.0%). As recent increases in inflation have been driven by temporary factors NBG has maintained its' key rate unchanged. Tighter lending standards slowed credit growth at 14.2% year-on-year excluding FX effect as of June 2019, making lending growth more sustainable and with higher quality. NBG continued to build-up reserves with US$ 30 million FX purchases in the second quarter, and international reserves increased to US$3.7 billion at 30 June 2019. However, these purchases, together with some currency speculation following the cancellation of direct flights from Russia, weakened GEL by 6.6% against the US dollar during the second quarter of 2019. Notwithstanding these pressures, Georgia's economic resilience continues to be underpinned by its diversified economic base and external economic linkages. While the direct Russian flight ban may slightly reduce Georgia's GDP growth, it is not expected to have any impact on the performance of the Group.

Whilst individual product loan yields have remained broadly stable, our increasing focus on lending in the mortgage segment and to finer margin corporate and SME clients has led to a negative mix effect on the net interest margin which, when combined with some competitive pricing pressure, increased minimum reserve requirements mandated by NBG and the carry-cost of our recent AT1 capital notes issuance, reduced the net interest margin by 40 basis points quarter-on-quarter to 5.4% in 2Q19. This shift in product mix, which we expect to continue at a slower rate during the remainder of 2019, improves asset quality and, particularly in the case of the mortgage portfolio, reduces the risk-asset and capital intensity of our lending growth. When we price individual products, we continue to ensure that we obtain a return on equity in excess of 20% on that product. In the Retail Banking segment, for example, the improved capital efficiency of our lending portfolio ensured that we increased the return on equity despite the net interest margin falling. Costs throughout the Group remain well-controlled and increased by 5.5% year-on-year in 1H19 (adjusted for one-off employee costs related to termination benefits of former CEO and executive management), reflecting the Bank's continuing investments in the Agile transformation process and the Bank-wide digital programmes.

Asset quality continues to be very robust, reflecting our good lending discipline and the ongoing strength of the economy. The annualised cost of credit risk ratio in the first half of 2019 was 1.5%, down 20bps year-on-year, broadly reflecting a very strong performance in the Corporate and Investment Banking business (annualised cost of credit risk ratio of 0.4%), which offset the impact of the new regulatory changes in the Retail Banking (annualised cost of credit risk ratio of 2.0%). The impact of these recent regulatory changes has now been largely completed, and the Retail Banking cost of credit risk ratio has now returned to more normal levels, as expected. As a result, the Group's cost of credit risk ratio reduced to 1.3% in the second quarter of 2019. The NPLs to gross loans ratio improved slightly to 3.2% at 30 June 2019, 20 basis points lower than a year ago and 10 basis points lower quarter-on-quarter. We continue to expect asset quality and credit metrics to remain strong over the medium-term.

The Retail Bank continues to deliver strong franchise growth and strong profitability. Customer lending increased by 6.0% during the second quarter of the year, and by 25.1% over the last 12 months. On a constant currency basis, the second quarter growth was 3.0% and the annual growth was 16.7%, at a time when we have been integrating significant regulatory changes to income verification procedures, and payment-to-income and loan-to-value ratios targeted to refocus retail lending towards the high quality secured mortgage portfolio and micro lending, where we are the most technologically advanced micro-lender in the country. Mortgage and micro lending were particularly strong, supported by the strength of the Georgian economy, growing by 9.2% and 7.4%, respectively, in the second quarter. Going forward, the Retail Bank's clear focus will continue to be on capturing the significant growth opportunities in the mortgage and MSME portfolios. The overall impact of the regulatory changes has been the reduction of the net interest margin of the Retail Bank, however, we are now seeing the overall credit risk in the Retail Banking reducing and leading to a sustainably lower Retail cost of credit risk ratio. Importantly, however, the capital efficiency of this portfolio shift remains strong and the Retail Bank continues to deliver a very strong return on equity - 25.3% in the first quarter and 26.9% in the second quarter of 2019 (adjusted for one-off employee costs related to termination benefits of former CEO and executive management).

The Retail Bank now has almost 2.5 million customers, an increase of 3.9% over the last 12 months. Our fully transformed, user-friendly, multi-feature mobile banking application, mBank, continues to see significant growth in the number of digital transactions, growing by 22.2% over the last three months alone, to over 8 million transactions in the second quarter. In addition, we have now comfortably exceeded our targeted 40,000 Solo clients by the end of 2018, with almost 50,000 clients now benefiting from Solo's concierge-style banking proposition.

Corporate and Investment Banking performed particularly strongly during the first half of 2019. On a constant currency basis, customer lending in CIB grew by 25.3% year-on-year and by 14.7% quarter-on-quarter, while the net interest margin remained broadly stable. This strong performance in CIB was driven by a 21.6% year-on-year growth in net fee and commission income during the first half of 2019, and an increase of 20.9% in operating income year-on-year, that led to 42.7% year-on-year growth in profit (adjusted for one-off employee costs related to termination benefits of former CEO and executive management, and other 2018 demerger related costs).

The Group's capital and funding position remains strong, and our issuance of US$100 million Additional Tier 1 capital notes in March 2019 has improved the efficiency of our capital structure, introduced a natural hedge against dollarisation in the economy and built in significant headroom over the fully-loaded Basel III capital requirements for 2021 that are currently being phased-in. These Additional Tier 1 capital notes received regulatory approval in April 2019 and added approximately 230 basis points to our Tier 1 capital ratio. During April 2019, we took the opportunity to repay US$65 million of Tier 2 capital subordinated debt, and this will substantially reduce the carry-cost of the new Additional Tier 1 capital notes issuance. In addition, we continue to generate high levels of internal capital as a result of both the Group's high return on equity, and the improved risk asset intensity of our current and expected lending growth. During the half of 2019, the Bank's NBG (Basel III) Tier 1 capital adequacy ratio increased from 12.2% in December 2018, to 13.3% in June 2019.

Bank of Georgia has an indisputably strong brand and customer franchise. Having taken over as Chief Executive of the Group during the first quarter, we have considerably strengthened the executive management team and we are working together to redefine the Group with high levels of digitalisation, the use of advanced analytics, and significantly improved efficiencies and processes to become the solution-based bank for our entire customer franchise. At the same time, the Bank has adapted to substantial regulatory change and has already reset its base for the coming years. We are achieving significant portfolio growth with continued profitability comfortably in excess of our targeted 20%+ return on equity level. With no further material regulatory changes expected, we are well placed to deliver strong growth over the next few years.

Archil Gachechiladze,

CEO, Bank of Georgia Group PLC

13 August 2019

DISCUSSION OF RESULTS

The Group's business is primarily comprised of three segments. (1) Retail Banking operations in Georgia principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfer and settlement services, and handling customers' deposits for both individuals as well as legal entities. Retail Banking targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses. (2) Corporate and Investment Banking comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients. (3) BNB, comprising JSC Belarusky Narodny Bank, principally provides retail and corporate banking services to clients in Belarus.

 
OPERATING INCOME 
GEL thousands, unless 
 otherwise                                              Change                Change                          Change 
 noted                              2Q19         2Q18    y-o-y         1Q19    q-o-q        1H19        1H18   y-o-y 
 
Interest income                  342,224      329,880     3.7%      334,735     2.2%     676,959     643,559    5.2% 
Interest expense               (160,602)    (143,298)    12.1%    (151,794)     5.8%   (312,396)   (276,728)   12.9% 
Net interest income              181,622      186,582    -2.7%      182,941    -0.7%     364,563     366,831   -0.6% 
Fee and commission income         68,025       55,693    22.1%       62,531     8.8%     130,556     106,906   22.1% 
Fee and commission expense      (24,758)     (17,846)    38.7%     (20,351)    21.7%    (45,109)    (34,549)   30.6% 
Net fee and commission 
 income                           43,267       37,847    14.3%       42,180     2.6%      85,447      72,357   18.1% 
Net foreign currency gain         36,700       25,000    46.8%       30,025    22.2%      66,724      39,252   70.0% 
Net other income / 
 (expense)                       (4,260)        3,705      NMF        3,568      NMF       (691)       9,451     NMF 
Operating income                 257,329      253,134     1.7%      258,714    -0.5%     516,043     487,891    5.8% 
 
Net interest margin                 5.4%         6.9%                  5.8%                 5.6%        7.0% 
Average interest earning 
 assets                       13,504,120   10,817,599    24.8%   12,752,388     5.9%  13,159,460  10,632,795   23.8% 
Average interest bearing 
 liabilities                  13,378,168   11,468,106    16.7%   12,717,669     5.2%  13,095,239  11,326,887   15.6% 
Average net loans and 
 finance 
 lease receivables, 
 currency 
 blended                      10,004,743    7,998,440    25.1%    9,453,255     5.8%   9,751,614   7,893,403   23.5% 
    Average net loans and 
     finance 
     lease receivables, GEL    3,977,481    3,313,608    20.0%    3,656,912     8.8%   3,825,608   3,199,612   19.6% 
    Average net loans and 
     finance 
     lease receivables, FC     6,027,262    4,684,832    28.7%    5,796,343     4.0%   5,926,006   4,693,791   26.3% 
Average client deposits and 
 notes, currency blended       8,673,526    7,253,758    19.6%    8,278,823     4.8%   8,487,934   7,124,489   19.1% 
   Average client deposits 
    and notes, GEL             2,860,563    2,588,111    10.5%    2,718,201     5.2%   2,793,175   2,449,970   14.0% 
   Average client deposits 
    and notes, FC              5,812,963    4,665,647    24.6%    5,560,622     4.5%   5,694,759   4,674,519   21.8% 
Average liquid assets, 
 currency 
 blended                       4,528,508    4,349,730     4.1%    4,405,239     2.8%   4,461,800   4,301,382    3.7% 
   Average liquid assets, 
    GEL                        2,049,163    1,833,260    11.8%    2,066,605    -0.8%   2,065,576   1,830,113   12.9% 
   Average liquid assets, 
    FC                         2,479,345    2,516,470    -1.5%    2,338,634     6.0%   2,396,224   2,471,269   -3.0% 
Liquid assets yield, 
 currency 
 blended                            3.4%         3.8%                  3.8%                 3.6%        3.7% 
   Liquid assets yield, GEL         6.1%         7.0%                  6.8%                 6.5%        6.9% 
   Liquid assets yield, FC          1.1%         1.5%                  1.1%                 1.1%        1.3% 
Loan yield, currency 
 blended                           11.8%        14.0%                 12.2%                12.0%       13.9% 
   Loan yield, GEL                 17.3%        20.8%                 18.4%                17.8%       21.0% 
   Loan yield, FC                   8.2%         9.0%                  8.3%                 8.2%        9.0% 
Cost of funds, currency 
 blended                            4.8%         5.0%                  4.8%                 4.8%        4.9% 
   Cost of funds, GEL               6.8%         7.2%                  7.0%                 6.9%        7.1% 
   Cost of funds, FC                3.7%         3.7%                  3.6%                 3.6%        3.6% 
Cost / income(6)                   38.3%        36.8%                 35.5%                36.9%       37.0% 
 

(6) Cost/income ratio is adjusted for GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

Performance highlights

-- Solid operating income of GEL 257.3mln in 2Q19 (up 1.7% y-o-y and down 0.5% q-o-q), ending six months of 2019 with operating income of GEL 516.0mln (up 5.8% y-o-y). Y-o-y operating income growth in 2Q19 and 1H19 was primarily driven by strong growth in net fee and commission income (up 14.3% y-o-y in 2Q19 and up 18.1% y-o-y in 1H19) and net foreign currency gains (up 46.8% y-o-y in 2Q19 and up 70.0% y-o-y in 1H19), which benefited from a high level of currency volatility in 2019

-- Our NIM was 5.4% in 2Q19 and 5.6% in 1H19. During second quarter 2019, NIM was down 150bps y-o-y due to the 220bps y-o-y decrease in loan yield, largely reflecting competition driven pricing pressure and our shift towards a higher quality, finer margin product mix on the back of tighter regulatory conditions for unsecured consumer lending, partially offset by 20bps y-o-y decline in cost of funds. On a q-o-q basis, loan yield decreased by 40bps, while cost of funds remained flat, resulting in 40bps q-o-q decline in 2Q19 NIM. On a half year basis, loan yield was down by 190bps y-o-y, while cost of funds decreased by 10bps y-o-y, causing NIM to decline by 140bps y-o-y. The decline in NIM in all periods presented was also partially driven by the increased minimum reserve requirements mandated by NBG as discussed in more details below

-- Loan yield. Currency blended loan yield was 11.8% in 2Q19 (down 220bps y-o-y and down 40bps q-o-q) and 12.0% in the first half of 2019 (down 190bps y-o-y). The y-o-y and q-o-q decline in loan yields during the second quarter and first half of 2019 was attributable to a decrease in both local and foreign currency loan yields, which primarily reflected the change in product mix in our loan portfolio and competition driven pricing pressure on the market

-- Liquid assets yield. Our liquid assets yield was 3.4% in 2Q19 (down 40bps y-o-y and q-o-q) and 3.6% in 1H19 (down 10bps y-o-y). The main contributor to y-o-y declining trend in both periods was decrease in foreign currency denominated liquid assets yields (down 40bps y-o-y in 2Q19 and down 20bps y-o-y in 1H19), reflecting a) increase in obligatory reserves with NBG, primarily driven by the changes in minimum reserve requirements mandated by NBG since September 2018, whereby the foreign currency funds raised by local banks carried up to 25% reserve requirement depending on maturity, and further increase of this requirement up to 30% since May 2019; b) starting from 12 July 2018, NBG reduced interest rates on foreign currency obligatory reserves (from US Fed rate minus 50bps to Fed rate minus 200bps, floored at zero for US Dollar reserves, and from ECB rate minus 20bps to ECB rate minus 200bps, floored at negative 60bps for EUR denominated reserves)

-- Cost of funds. Cost of funds stood at 4.8% both in 2Q19 (down 20bps y-o-y and flat q-o-q) and in 1H19 (down 10bps y-o-y). Y-o-y decline in cost of funds in 2Q19 and 1H19 was primarily on the back of decline in the cost of client deposits and notes (down 30bps y-o-y in 2Q19 and down 20bps y-o-y in 1H19), which represented 63.5% of total interest-bearing liabilities. This decline offset the 40bps and 10bps y-o-y increase in cost of debt securities issued in 2Q19 and 1H19, respectively, as a result of the issuance of our inaugural US$ 100 million Additional Tier 1 capital perpetual subordinated notes at the end of March 2019. On q-o-q basis, the cost of funds remained flat, driven by lower cost of amounts due to credit institutions on the back of repayment of US$ 65mln subordinated debt in April 2019, coupled with decrease in Libor and NBG monetary policy rates, and offset by increased cost of debt securities issued as a result of issuance of the above mentioned Additional Tier 1 capital subordinated notes

-- Net fee and commission income. Net fee and commission income reached GEL 43.3mln in 2Q19 (up 14.3% y-o-y and up 2.6% q-o-q) and GEL 85.4mln in 1H19 (up 18.1% y-o-y). Y-o-y growth was mainly driven by the strong performance in our settlement operations supported by the success of our Retail Banking franchise and a strong increase in fees and commission income from guarantees and letters of credit issued by the Corporate and Investment Banking business

-- Net foreign currency gain. Net foreign currency gain was up 46.8% y-o-y and up 22.2% q-o-q in 2Q19, and up 70.0% y-o-y in 1H19, primarily due to increased client-driven flows, as well as a high level of currency volatility during first and second quarters of 2019

-- Net other income. Significant y-o-y decline in net other income in 1H19 was largely driven by net losses from derivative financial instruments (interest rate swap hedges) recorded during the first and second quarters of 2019, partially offset by net gains from investment securities during the same period

 
 NET OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF RISK; PROFIT 
  FOR THE PERIOD 
 GEL thousands, unless 
  otherwise                                            Change              Change                           Change 
  noted (7)                          2Q19       2Q18    y-o-y       1Q19    q-o-q        1H19        1H18    y-o-y 
 
 Salaries and other employee 
  benefits                       (57,982)   (53,925)     7.5%   (52,418)    10.6%   (110,399)   (103,378)     6.8% 
 Administrative expenses         (22,033)   (26,862)   -18.0%   (22,741)    -3.1%    (44,774)    (52,495)   -14.7% 
 Depreciation and amortisation   (17,295)   (11,392)    51.8%   (15,688)    10.2%    (32,983)    (22,914)    43.9% 
 Other operating expenses         (1,248)      (965)    29.3%    (1,080)    15.6%     (2,329)     (1,736)    34.2% 
 Operating expenses              (98,558)   (93,144)     5.8%   (91,927)     7.2%   (190,485)   (180,523)     5.5% 
 Profit from associate                254        376   -32.4%        188    35.1%         442         695   -36.4% 
 Operating income before 
  cost of risk                    159,025    160,366    -0.8%    166,975    -4.8%     326,000     308,063     5.8% 
 Expected credit loss / 
  impairment 
  charge on loans to customers   (32,436)   (33,534)    -3.3%   (40,117)   -19.1%    (72,553)    (70,211)     3.3% 
 Expected credit loss / 
  impairment 
  charge on finance lease 
  receivables                       (557)      (266)   109.4%      (446)    24.9%     (1,003)       (253)      NMF 
 Other expected credit loss 
  / impairment charge on other 
  assets and provisions           (2,483)    (3,726)   -33.4%    (2,089)    18.9%     (4,573)       (876)      NMF 
 Cost of risk                    (35,476)   (37,526)    -5.5%   (42,652)   -16.8%    (78,129)    (71,340)     9.5% 
 Net operating income before 
  non-recurring items             123,549    122,840     0.6%    124,323    -0.6%     247,871     236,723     4.7% 
 Net non-recurring items          (2,538)   (13,763)   -81.6%    (1,575)    61.1%     (4,112)    (16,711)   -75.4% 
 Profit before income tax 
  expense and one-off costs       121,011    109,077    10.9%    122,748    -1.4%     243,759     220,012    10.8% 
 Income tax expense               (9,871)    (5,461)    80.8%   (10,536)    -6.3%    (20,407)    (14,744)    38.4% 
 Profit adjusted for one-off 
  costs                           111,140    103,616     7.3%    112,212    -1.0%     223,352     205,268     8.8% 
 One-off termination costs 
  of former CEO and executive 
  management (after tax), 
  one-off demerger related 
  expenses (after tax) and 
  one-off impact of 
  re-measurement 
  of deferred tax balances        (3,996)   (52,541)   -92.4%   (10,240)   -61.0%    (14,236)    (52,541)   -72.9% 
 Profit                           107,144     51,075   109.8%    101,972     5.1%     209,116     152,727    36.9% 
 

(7) The adjusted profit in the table excludes GEL 4.0mln in 2Q19 (1Q19: GEL 10.2mln) and GEL 14.2mln in 1H19 one-off employee costs (net of income tax) related to the former CEO and executive management termination benefits. The amount is comprised of GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 4.0mln (gross of income tax) excluded from non-recurring items in 1Q19 and 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 52.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

-- Operating expenses adjusted for one-off employee costs related to termination benefits of former executive management members (acceleration of share-based compensation) were GEL 98.6mln in 2Q19 (up 5.8% y-o-y and up 7.2% q-o-q) and GEL 190.5mln in 1H19 (up 5.5% y-o-y), driving the negative operating leverage of 4.2% y-o-y and 7.7% q-o-q in 2Q19. The q-o-q increase in operating expenses was primarily driven by higher salaries and other employee benefits as a result of our increased investment in IT related resources as part of the Agile transformation process and focus on digitalisation

-- The decline in administrative expenses and increase in depreciation and amortisation expenses is primarily driven by adoption of a new standard IFRS 16, Leases replacing IAS 17, Leases effective 1 January 2019. As a result of the adoption of the standard the Group recorded on its balance sheet assets related to the right to use the rented properties together with corresponding liabilities for respective payments under the lease contracts. There was no material impact on overall operating expenses in 1Q19 and 2Q19

-- Improved asset quality. The cost of credit risk ratio was 1.3% in 2Q19 (down 30bps y-o-y and down 40bps q-o-q) and 1.5% in the first half of 2019 (down 20bps y-o-y). RB's cost of credit risk ratio was 1.6% in 2Q19 (down 40bps y-o-y and down 80bps q-o-q) and 2.0% in 1H19 (down 10bps y-o-y), while CIB's cost of credit risk ratio was 0.7% in 2Q19 (up 10bps y-o-y and up 60bps q-o-q) and 0.4% in 1H19 (down 60bps y-o-y). The y-o-y and q-o-q decrease in RB's cost of credit risk ratio reflected improved loan portfolio quality due to our increasing focus on lending in the mortgage segment and to finer margin SME clients

-- Quality of our loan book remained strong in 2Q19 as evidenced by the following closely monitored metrics:

 
 GEL thousands, unless otherwise noted     Jun-19    Jun-18   Change    Mar-19   Change 
                                                               y-o-y              q-o-q 
 
 Non-performing loans 
 NPLs                                     347,285   283,768    22.4%   326,127     6.5% 
 NPLs to gross loans                         3.2%      3.4%               3.3% 
  NPLs to gross loans, RB                    2.1%      2.1%               2.2% 
  NPLs to gross loans, CIB                   5.3%      4.8%               5.7% 
 NPL coverage ratio                         88.1%     99.4%              92.2% 
 NPL coverage ratio adjusted for the 
  discounted value of collateral           131.5%    142.8%             132.6% 
 
 Past due dates 
 Retail loans - 15 days past due rate        1.5%      1.6%               1.3% 
 Mortgage loans - 15 days past due 
  rate                                       1.4%      1.0%               1.1% 
 

-- BNB - the Group's banking subsidiary in Belarus - continues to remain strongly capitalised, with capital adequacy ratios well above the requirements of the National Bank of the Republic of Belarus ("NBRB"). At 30 June 2019, total capital adequacy ratio was 15.7%, above the 10% minimum requirement, while Tier I capital adequacy ratio was 9.8%, above NBRB's 7% minimum requirement. ROAE was 9.8% in 2Q19 (10.8% in 2Q18 and 12.1% in 1Q19) and 10.8% in 1H19 (11.5% in 1H18). For detailed financial results of BNB, please see page 22

-- Net non-recurring items. Net non-recurring expenses adjusted for one-off costs amounted to GEL 2.5mln in 2Q19 (GEL 13.8mln in 2Q18 and GEL 1.6mln in 1Q19) and GEL 4.1mln in 1H19 (GEL 16.7mln in 1H18), largely reflecting legal fees incurred during first and second quarter of 2019

-- Overall, profit adjusted for one-off costs totalled GEL 111.1mln in 2Q19 (up 7.3% y-o-y and down 1.0% q-o-q), and GEL 223.4mln in the first half of 2019 (up 8.8% y-o-y), while ROAE(8) was 22.9% in 2Q19 (25.4% in 2Q18 and 24.5% in 1Q19) and 23.7% in 1H19 (25.7% in 1H18)

(8) ROAE adjusted for GEL 4.0mln in 2Q19 (1Q19: GEL 10.2mln) and GEL 14.2mln in 1H19 one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ROAE adjusted for GEL 52.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

 
 BALANCE SHEET HIGHLIGHTS 
 GEL thousands, unless otherwise                    Jun-19      Jun-18   Change      Mar-19   Change 
  noted                                                                   y-o-y                q-o-q 
 
 Liquid assets                                   4,537,545   4,266,417     6.4%   4,502,390     0.8% 
    Liquid assets, GEL                           2,092,757   1,969,843     6.2%   2,005,142     4.4% 
    Liquid assets, FC                            2,444,788   2,296,574     6.5%   2,497,248    -2.1% 
 Net loans and finance lease receivables        10,579,710   8,108,647    30.5%   9,570,691    10.5% 
    Net loans and finance lease receivables, 
     GEL                                         4,217,713   3,378,450    24.8%   3,758,320    12.2% 
    Net loans and finance lease receivables, 
     FC                                          6,361,997   4,730,197    34.5%   5,812,371     9.5% 
 Client deposits and notes                       8,855,616   7,174,234    23.4%   8,393,861     5.5% 
 Amounts due to credit institutions              2,960,519   2,740,595     8.0%   2,463,408    20.2% 
    Borrowings from DFIs                         1,253,921   1,161,120     8.0%   1,309,976    -4.3% 
    Short-term loans from central banks          1,001,496     556,834    79.9%     585,797    71.0% 
    Loans and deposits from commercial 
     banks                                         705,102   1,022,641   -31.1%     567,635    24.2% 
 Debt securities issued                          2,137,239   1,527,452    39.9%   2,045,428     4.5% 
 Liquidity and CAR ratios 
 Net loans / client deposits and 
  notes                                             119.5%      113.0%               114.0% 
 Net loans / client deposits and 
  notes + DFIs                                      104.7%       97.3%                98.6% 
 Liquid assets / total assets                        28.1%       32.2%                29.9% 
 Liquid assets / total liabilities                   31.9%       36.9%                34.3% 
 NBG liquidity ratio                                 37.0%       30.2%                36.7% 
 NBG liquidity coverage ratio                       114.3%      129.8%               133.1% 
 NBG (Basel III) Tier I capital adequacy 
  ratio                                              13.3%       12.5%                12.7% 
 NBG (Basel III) Total capital adequacy 
  ratio                                              16.7%       17.5%                17.1% 
 

Our balance sheet remains highly liquid (NBG liquidity coverage ratio of 114.3%) and strongly capitalised (NBG Basel III Tier I capital adequacy ratio of 13.3%) with a well-diversified funding base (client deposits and notes to total liabilities of 62.3%).

-- Liquidity. Liquid assets stood at GEL 4,537.5mln at 30 June 2019, up 6.4% y-o-y and up 0.8% q-o-q. The notable increase over the year was in obligatory reserves with NBG, combined with excess liquidity deployed with the credit institutions, NBG and Ministry of Finance. Increase in obligatory reserves with NBG was primarily driven by the changes in minimum reserve requirements mandated by NBG since September 2018, whereby the foreign currency funds raised by local banks carried up to 25% reserve requirement depending on maturity. The reserve requirement on foreign currency funds was further increased up to 30% depending on maturity starting from the end of May 2019. The NBG Liquidity coverage ratio was 114.3% at 30 June 2019 (129.8% at 30 June 2018 and 133.1% at 31 March 2019), well above the 100% minimum requirement level

-- Loan book. Our net loan book and finance lease receivables reached GEL 10,579.7mln at 30 June 2019, up 30.5% y-o-y and up 10.5% q-o-q. As of 30 June 2019, the retail loan book represented 67.2% of the total loan portfolio (70.3% at 30 June 2018 and 70.0% at 31 March 2019). Both local and foreign currency portfolios experienced strong y-o-y growth of 24.8% and 34.5%, respectively. Furthermore, local currency denominated loan portfolio was up 12.2% q-o-q, while foreign currency denominated loan book grew by 9.5% q-o-q. The local currency loan portfolio growth was partially driven by the Government's de-dollarisation initiatives and our goal to increase the share of local currency loans in our portfolio

-- Dollarisation of our loan book and client deposits. The retail client loan book in foreign currency accounted for 45.9% of the total RB loan book at 30 June 2019 (46.0% at 30 June 2018 and 48.6% at 31 March 2019), while retail client foreign currency deposits comprised 68.8% of total RB deposits at 30 June 2019 (70.6% at 30 June 2018 and 69.4% at 31 March 2019). At 30 June 2019, 83.6% of CIB's loan book was denominated in foreign currency (80.2% at 30 June 2018 and 83.0% at 31 March 2019), while 63.2% of CIB deposits were denominated in foreign currency (50.7% at 30 June 2018 and 60.2% at 31 March 2019). De-dollarisation of loans and deposits is expected to pick-up pace as a result of the recent NBG-mandated increase of local currency loan threshold from GEL 100,000 to GEL 200,000 from 1 January 2019 and increased mandatory reserve requirements on funds attracted in foreign currency introduced by NBG since May 2019

-- Net loans to customer funds and DFI ratio. Our net loans to customer funds and DFI ratio, which is closely monitored by management, remained strong at 104.7% at 30 June 2019 (up from 97.3% at 30 June 2018 and up from 98.6% at 31 March 2019)

-- Diversified funding base. Debt securities issued grew by 39.9% y-o-y and by 4.5% q-o-q at 30 June 2019. The y-o-y increase was primarily driven by the issuance of US$ 100 million Additional Tier 1 capital notes in March 2019 (see details below)

-- Capital Adequacy requirements. Basel III Tier 1 and Total capital adequacy ratios stood at 13.3% and 16.7%, respectively, as of 30 June 2019 compared to a minimum required level of 11.6% and 16.1%, respectively. At the same time, Common Equity Tier 1 (CET1) ratio stood at 11.0% compared to a 9.6% minimum requirement at 30 June 2019. In March 2019, the Bank issued inaugural US$ 100 million 11.125% Additional Tier 1 capital perpetual subordinated notes callable after 5.25 years and on every subsequent interest payment date, subject to prior consent of the National Bank of Georgia at an issue price of 100.00% (the "Notes"). The Notes are listed on the Irish Stock Exchange and rated B- (Fitch). The issuance was the first international offering of Additional Tier 1 Capital Notes from Georgia and the South Caucasus region. Basel III regulations recently introduced in Georgia now enable this type of capital optimisation and this US Dollar issue provides the Bank with an opportunity to diversify its capital structure from a foreign currency perspective and provides a natural hedge against dollarisation in the economy. The regulatory approval on the classification of the Notes as Additional Tier 1 instruments was received in April 2019

DISCUSSION OF SEGMENT RESULTS

RETAIL BANKING (RB)

Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and the handling of customer deposits for both individuals and legal entities (SME and micro businesses only). RB is represented by the following four sub-segments: (1) the emerging retail segment (through our Express brand), (2) retail mass market segment; (3) SME and micro businesses - "MSME" (through our Bank of Georgia brand), and (4) the mass affluent segment (through our Solo brand).

 
 GEL thousands, unless 
  otherwise                                             Change               Change                           Change 
  noted                              2Q19        2Q18    y-o-y        1Q19    q-o-q        1H19        1H18    y-o-y 
 
 INCOME STATEMENT 
  HIGHLIGHTS(9) 
 Net interest income              128,167     138,485    -7.5%     130,987    -2.2%     259,154     273,938    -5.4% 
 Net fee and commission 
  income                           34,605      29,153    18.7%      32,435     6.7%      67,039      55,292    21.2% 
 Net foreign currency gain         18,070      10,581    70.8%      13,240    36.5%      31,309      14,929   109.7% 
 Net other income / (expense)     (3,753)       1,664      NMF       2,168      NMF     (1,582)       4,770      NMF 
 Operating income                 177,089     179,883    -1.6%     178,830    -1.0%     355,920     348,929     2.0% 
 Salaries and other employee 
  benefits                       (36,691)    (34,639)     5.9%    (33,874)     8.3%    (70,564)    (66,752)     5.7% 
 Administrative expenses         (14,992)    (20,544)   -27.0%    (15,796)    -5.1%    (30,788)    (40,084)   -23.2% 
 Depreciation and 
  amortisation                   (14,492)     (9,818)    47.6%    (13,287)     9.1%    (27,779)    (19,720)    40.9% 
 Other operating expenses           (753)       (602)    25.1%       (536)    40.5%     (1,290)     (1,105)    16.7% 
 Operating expenses              (66,928)    (65,603)     2.0%    (63,493)     5.4%   (130,421)   (127,661)     2.2% 
 Profit from associate                254         376   -32.4%         188    35.1%         442         695   -36.4% 
 Operating income before cost 
  of risk                         110,415     114,656    -3.7%     115,525    -4.4%     225,941     221,963     1.8% 
 Cost of risk                    (26,542)    (29,618)   -10.4%    (39,386)   -32.6%    (65,930)    (58,072)    13.5% 
 Net operating income before 
  non-recurring items              83,873      85,038    -1.4%      76,139    10.2%     160,011     163,891    -2.4% 
 Net non-recurring items             (64)     (8,829)   -99.3%       (276)   -76.8%       (339)    (10,803)   -96.9% 
 Profit before income tax 
  expense and one-off costs        83,809      76,209    10.0%      75,863    10.5%     159,672     153,088     4.3% 
 Income tax expense               (6,323)     (3,173)    99.3%     (6,101)     3.6%    (12,425)     (9,236)    34.5% 
 Profit adjusted for one-off 
  costs                            77,486      73,036     6.1%      69,762    11.1%     147,247     143,852     2.4% 
 One-off termination costs 
  of former CEO and executive 
  management (after tax), 
  one-off 
  demerger related expenses 
  (after tax) and one-off 
  impact 
  of re-measurement of 
  deferred 
  tax balances                    (3,067)    (33,544)   -90.9%     (7,075)   -56.7%    (10,142)    (33,544)   -69.8% 
 Profit                            74,419      39,492    88.4%      62,687    18.7%     137,105     110,308    24.3% 
 
 BALANCE SHEET HIGHLIGHTS 
 Net loans, currency blended    6,771,223   5,414,566    25.1%   6,389,631     6.0%   6,771,223   5,414,566    25.1% 
  Net loans, GEL                3,661,673   2,923,737    25.2%   3,286,042    11.4%   3,661,673   2,923,737    25.2% 
  Net loans, FC                 3,109,550   2,490,829    24.8%   3,103,589     0.2%   3,109,550   2,490,829    24.8% 
 Client deposits, currency 
  blended                       4,987,611   3,479,938    43.3%   4,520,521    10.3%   4,987,611   3,479,938    43.3% 
  Client deposits, GEL          1,553,653   1,021,776    52.1%   1,385,451    12.1%   1,553,653   1,021,776    52.1% 
  Client deposits, FC           3,433,958   2,458,162    39.7%   3,135,070     9.5%   3,433,958   2,458,162    39.7% 
 of which: 
 Time deposits, currency 
  blended                       2,866,525   1,952,610    46.8%   2,593,744    10.5%   2,866,525   1,952,610    46.8% 
  Time deposits, GEL              704,286     437,120    61.1%     637,522    10.5%     704,286     437,120    61.1% 
  Time deposits, FC             2,162,239   1,515,490    42.7%   1,956,222    10.5%   2,162,239   1,515,490    42.7% 
 Current accounts and demand 
  deposits, currency blended    2,121,086   1,527,328    38.9%   1,926,777    10.1%   2,121,086   1,527,328    38.9% 
  Current accounts and demand 
   deposits, GEL                  849,367     584,656    45.3%     747,929    13.6%     849,367     584,656    45.3% 
  Current accounts and demand 
   deposits, FC                 1,271,719     942,672    34.9%   1,178,848     7.9%   1,271,719     942,672    34.9% 
 
 KEY RATIOS 
 ROAE(9)                            26.9%       30.6%                25.3%                26.2%       31.1% 
 Net interest margin, 
  currency 
  blended                            5.9%        7.9%                 6.4%                 6.1%        8.1% 
 Cost of credit risk ratio           1.6%        2.0%                 2.4%                 2.0%        2.1% 
 Cost of funds, currency 
  blended                            5.3%        5.9%                 5.6%                 5.4%        5.9% 
 Loan yield, currency blended       12.9%       15.7%                13.6%                13.2%       15.8% 
  Loan yield, GEL                   17.7%       22.0%                19.3%                18.4%       22.2% 
  Loan yield, FC                     7.3%        8.2%                 7.7%                 7.5%        8.3% 
 Cost of deposits, currency 
  blended                            3.0%        2.9%                 3.0%                 3.0%        2.9% 
  Cost of deposits, GEL              5.2%        4.9%                 5.2%                 5.2%        4.8% 
  Cost of deposits, FC               2.1%        2.1%                 2.1%                 2.1%        2.1% 
 Cost of time deposits, 
  currency 
  blended                            4.3%        4.2%                 4.3%                 4.3%        4.2% 
  Cost of time deposits, GEL         8.7%        8.7%                 8.8%                 8.7%        8.8% 
  Cost of time deposits, FC          2.9%        3.0%                 2.9%                 2.9%        3.0% 
 Current accounts and demand 
  deposits, currency blended         1.4%        1.1%                 1.3%                 1.3%        1.1% 
  Current accounts and demand 
   deposits, GEL                     2.3%        2.0%                 2.2%                 2.2%        1.9% 
  Current accounts and demand 
   deposits, FC                      0.8%        0.6%                 0.7%                 0.7%        0.6% 
 Cost / income ratio(10)            37.8%       36.5%                35.5%                36.6%       36.6% 
 

(9) The income statement adjusted profit excludes GEL 3.1mln in 2Q19 (1Q19: GEL 7.1mln) and GEL 10.1mln in 1H19 one-off employee costs (net of income tax) related to the former CEO and executive management termination benefits. The amount is comprised of GEL 3.5mln in 2Q19 (1Q19: GEL 5.2mln) and GEL 8.6mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 2.9mln (gross of income tax) excluded from non-recurring items in 1Q19 and 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 33.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances. The ROAE has been adjusted accordingly for all respective periods presented

(10) Cost/income ratio adjusted for GEL 3.5mln in 2Q19 (1Q19: GEL 5.2mln) and GEL 8.6mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

Performance highlights

-- Retail Banking delivered solid quarterly results in each of its major segments and generated operating income of GEL 177.1mln in 2Q19 (down 1.6% y-o-y and down 1.0% q-o-q) and GEL 355.9mln in 1H19 (up 2.0% y-o-y)

-- RB's net interest income was down 7.5% y-o-y and down 2.2% q-o-q in 2Q19, and down 5.4% y-o-y in 1H19, largely as a result of the regulations introduced by the National Bank of Georgia on consumer lending in 2018. Net interest income still benefits from the growth of the local currency loan portfolio, which generated 10.4ppts and 10.9ppts higher yields than the foreign currency loan portfolio in 2Q19 and 1H19, respectively

-- The Retail Banking net loan book reached GEL 6,771.2mln in 2Q19, up 25.1% y-o-y and up 6.0% q-o-q. On a constant currency basis our retail loan book increased by 16.7% y-o-y and by 3.0% q-o-q in 2Q19. Our local currency denominated loan book increased by 25.2% y-o-y and by 11.4% q-o-q, while the foreign currency denominated loan book grew by 24.8% y-o-y and was by 0.2% q-o-q. As a result, the local currency denominated loan book accounted for 54.1% of the total Retail Banking loan book at 30 June 2019 (54.0% at 30 June 2018 and 51.4% at 31 March 2019)

-- The loan portfolio composition reflects the shift towards a higher quality, finer margin product mix on the back of tighter lending conditions for unsecured consumer lending. The y-o-y and q-o-q loan book growth reflected continued strong loan origination levels in MSME and mortgage segments:

 
 Retail Banking loan book by products 
 GEL million, unless otherwise                        Change             Change                       Change 
  noted                              2Q19      2Q18    y-o-y      1Q19    q-o-q      1H19      1H18    y-o-y 
 Loan originations 
 Consumer loans                     407.6     346.5    17.6%     306.5    33.0%     714.0     710.6     0.5% 
 Mortgage loans                     452.8     349.7    29.5%     209.5   116.1%     662.3     653.0     1.4% 
 Micro loans                        323.4     248.5    30.2%     287.0    12.7%     610.5     532.1    14.7% 
 SME loans                          239.4     152.7    56.8%     214.5    11.6%     453.9     283.6    60.1% 
 POS loans                           18.4      30.9   -40.5%      14.5    27.3%      32.9      81.1   -59.4% 
 
 Outstanding balance 
 Consumer loans                   1,447.5   1,322.1     9.5%   1,381.5     4.8%   1,447.5   1,322.1     9.5% 
 Mortgage loans                   2,814.8   1,931.3    45.7%   2,578.5     9.2%   2,814.8   1,931.3    45.7% 
 Micro loans                      1,408.4   1,144.6    23.0%   1,310.8     7.4%   1,408.4   1,144.6    23.0% 
 SME loans                          795.7     631.9    25.9%     795.8     0.0%     795.7     631.9    25.9% 
 POS loans                           38.2      92.8   -58.8%      44.4   -13.8%      38.2      92.8   -58.8% 
 

-- Retail Banking client deposits increased to GEL 4,987.6mln, up 43.3% y-o-y and up 10.3% q-o-q. The dollarisation level of our deposits decreased to 68.8% at 30 June 2019 from 70.6% at 30 June 2018 and from 69.4% at 31 March 2019. The cost of foreign currency denominated deposits stood at 2.1% in 2Q19 and in 1H19, flat both y-o-y and q-o-q. The cost of local currency denominated deposits increased by 30bps y-o-y and was flat q-o-q in 2Q19 and increased by 40bps y-o-y in 1H19. The spread between the cost of RB's client deposits in GEL and foreign currency widened to 3.1ppts during 2Q19 (GEL: 5.2%; FC: 2.1%) compared to 2.8ppts in 2Q18 (GEL: 4.9%; FC: 2.1%) and 3.1ppts in 1Q19 (GEL: 5.2%; FC: 2.1%). On a half year basis, the spread was 3.1ppts in 1H19 (GEL: 5.2%; FC: 2.1%) compared to 2.7ppts in 1H18 (GEL: 4.8%; FC: 2.1%). Local currency denominated deposits increased at a faster pace to GEL 1,553.7mln (up 52.1% y-o-y and up 12.1% q-o-q), as compared to foreign currency denominated deposits that grew to GEL 3,434.0mln (up 39.7% y-o-y and up 9.5% q-o-q)

-- Retail Banking NIM was 5.9% in 2Q19 (down 200bps y-o-y and down 50bps q-o-q) and 6.1% in 1H19 (down 200bps y-o-y). The decline in NIM was attributable to lower loan yields (down 280bps y-o-y and down 70bps q-o-q in 2Q19 and down 260bps y-o-y in 1H19), mainly driven by the change in the Retail Banking loan portfolio product mix, with the lower yield-lower risk products share increasing in total RB loan portfolio. Meanwhile, the cost of funds decreased by 60bps y-o-y and by 30bps q-o-q in 2Q19 and by 50bps y-o-y in 1H19, primarily on the back of decrease in Libor and NBG monetary policy rates

-- Strong growth in Retail Banking net fee and commission income. The strong growth in net fee and commission income during all reported periods was driven by an increase in settlement operations and the strong underlying growth in our Solo, mass retail and MSME segments

-- RB's asset quality improved in 2Q19 reflecting our increasing focus on lending in the mortgage segment and to finer margin SME clients. Cost of credit risk ratio was 1.6% in 2Q19 (down from 2.0% in 2Q18 and from 2.4% in 1Q19) and 2.0% in 1H19 (down from 2.1% in 1H18)

-- Our Retail Banking business continued to deliver solid growth as we further develop our strategy towards continuous digitalisation, as demonstrated by the following performance indicators:

 
 Retail Banking performance indicators 
 Volume information in                               Change                Change                             Change 
  GEL thousands                  2Q19         2Q18    y-o-y         1Q19    q-o-q         1H19         1H18    y-o-y 
 Retail Banking 
 customers 
 Number of new customers       41,175       45,213    -8.9%       39,845     3.3%       81,020      108,834   -25.6% 
 Number of customers        2,475,292    2,382,139     3.9%    2,454,678     0.8%    2,475,292    2,382,139     3.9% 
 Cards 
 Number of cards issued       183,106      191,552    -4.4%      176,085     4.0%      359,191      437,690   -17.9% 
 Number of cards 
  outstanding               2,122,006    2,235,122    -5.1%    2,139,239    -0.8%    2,122,006    2,235,122    -5.1% 
 Express Pay terminals 
 Number of Express Pay 
  terminals                     3,177        2,955     7.5%        3,152     0.8%        3,177        2,955     7.5% 
 Number of transactions 
  via Express Pay 
  terminals                27,499,428   27,479,192     0.1%   26,751,138     2.8%   54,250,566   53,314,273     1.8% 
 Volume of transactions 
  via Express Pay 
  terminals                 1,951,441    1,639,313    19.0%    1,765,536    10.5%    3,716,977    3,135,482    18.5% 
 POS terminals 
 Number of desks               14,026        9,304    50.8%       12,766     9.9%       14,026        9,304    50.8% 
 Number of contracted 
  merchants                     6,832        5,382    26.9%        5,902    15.8%        6,832        5,382    26.9% 
 Number of POS 
  terminals(11)                19,667       12,815    53.5%       17,684    11.2%       19,667       12,815    53.5% 
 Number of transactions 
  via POS terminals        20,805,141   15,737,715    32.2%   16,529,540    25.9%   37,334,681   28,944,587    29.0% 
 Volume of transactions 
  via POS terminals           617,763      470,194    31.4%      488,198    26.5%    1,105,961      865,294    27.8% 
 Internet banking 
 Number of active 
  users(12)                   268,357      243,377    10.3%      277,960    -3.5%      268,357      243,377    10.3% 
 Number of transactions 
  via internet bank         1,338,941    1,446,014    -7.4%    1,421,135    -5.8%    2,760,076    2,933,076    -5.9% 
 Volume of transactions 
  via internet bank           557,660      451,944    23.4%      490,457    13.7%    1,048,117      878,958    19.2% 
 Mobile banking 
 Number of active 
  users(12)                   418,155      228,980    82.6%      382,152     9.4%      418,155      228,980    82.6% 
 Number of transactions 
  via mobile bank           8,182,306    3,233,287   153.1%    6,697,926    22.2%   14,880,232    6,051,094   145.9% 
 Volume of transactions 
  via mobile bank           1,025,298      407,822   151.4%      790,201    29.8%    1,815,498      725,203   150.3% 
 

- Growth in the client base was due to the increased offering of cost-effective remote channels. The increase to 2,475,292 customers in 2Q19 (up 3.9% y-o-y and up 0.8% q-o-q) reflects sustained growth in our client base over recent periods and was one of the drivers of the increase in our Retail Banking net fee and commission income

- The number of outstanding cards decreased by 5.1% y-o-y and by 0.8% q-o-q in 2Q19 primarily due to Express cards which have been declining in line with the recently introduced regulations on consumer lending. Excluding the Express cards, total number of cards outstanding as at 30 June 2019 increased by 19.2% y-o-y and 5.2% q-o-q. The number of Loyalty programme Plus+ cards, launched in July 2017 as part of RB's client-centric approach, reached 721,700 as at 30 June 2019, up 58.7% y-o-y and up 10.9% q-o-q

- The utilisation of Express Pay terminals continued to grow in 2Q19. The volume of transactions increased by 19.0% y-o-y and by 10.5% q-o-q in 2Q19 and increased by 18.5% y-o-y in 1H19, while number of transactions increased by 0.1% y-o-y and by 2.8% q-o-q in 2Q19 and increased by 1.8% y-o-y in 1H19. The fees charged to clients for transactions executed through express pay terminals amounted to GEL 5.6mln in 2Q19 (up 1.3% y-o-y and down 1.8% q-o-q) and GEL 11.2mln in 1H19 (up 4.9% y-o-y)

- Digital penetration growth. For our mobile banking application, mbank, the number of transactions (up 153.1% y-o-y and up 22.2% q-o-q in 2Q19 and up 145.9% y-o-y in 1H19) and the volume of transactions (up 151.4% y-o-y and up 29.8% q-o-q in 2Q19 and up 150.3% y-o-y in 1H19) continue to show outstanding growth. Since its launch on 29 May 2017, 869,631 downloads have been made by the Bank's customers. During the same period approximately 34.0 million transactions were performed using the application

- Significant growth in loans issued and deposits opened through Internet and Mobile Bank. In 2017, we started actively offering loans and deposit products to our customers through the Internet Bank. In 2Q19, 5,814 loans were issued with a total value of GEL 8.8mln, and 3,447 deposits were opened with a total value of GEL 7.0mln through Internet Bank. Starting from 2018, our customers have been able to apply for a loan via mBank as well. In 2Q19, 16,385 loans were issued with a total value of GEL 18.4mln using the mobile banking application. Moreover, in 3Q18 a new feature was added to mBank and our customers can now open a deposit via our mobile platform. During second quarter 2019, 8,782 deposit accounts were opened with a total deposited amount of GEL 7.9mln. As a result, around 93% of total daily banking transactions were executed through digital channels during 2Q19 and 1H19

-- Solo, our premium banking brand, continues its strong growth and investment in its lifestyle brand. We have now 12 Solo lounges, of which 9 are located in Tbilisi, the capital of Georgia, and 3 in major regional cities of Georgia. The number of Solo clients reached 48,953 at 30 June 2019 (39,030 at 30 June 2018 and 47,057 at 31 March 2019). Solo is targeting doubling profit in 3 years to GEL 112mln through excellence in customer service, higher digitalisation and tailor-made bundled offering. In 2Q19, the product to client ratio for the Solo segment was 5.3, compared to 2.1 for our retail franchise. While Solo clients currently represent 2.0% of our total retail client base, they contributed 29.7% to our retail loan book, 39.4% to our retail deposits, 18.5% and 22.8% to our net retail interest income and to our net retail fee and commission income in 2Q19, respectively. The fee and commission income from the Solo segment reached GEL 6.6mln in 2Q19 (GEL 5.5mln in 2Q18 and GEL 5.8mln in 1Q19) and GEL 12.4mln in 1H19 (GEL 10.0mln in 1H18). Solo Club, launched in 2Q17, a membership group within Solo which offers exclusive access to Solo products and offers ahead of other Solo clients at a higher fee, continued to increase its client base. At 30 June 2019, Solo Club had 4,805 members, up 49.3% y-o-y and up 8.1% q-o-q

-- MSME banking delivered strong growth. The number of MSME segment clients reached 217,913 at 30 June 2019, up 19.8% y-o-y and up 4.9% q-o-q. MSME's loan portfolio reached GEL 2,376.7mln at 30 June 2019 (up 25.4% y-o-y and up 4.2% q-o-q) and client deposits and notes increased to GEL 713.0mln (up 47.8% y-o-y and up 4.5% q-o-q). The MSME segment generated operating income of GEL 49.9mln in 2Q19 (up 32.4% y-o-y and up 9.8% q-o-q) and GEL 95.4mln in 1H19 (up 32.5% y-o-y)

-- Retail Banking profit adjusted for one-off costs (see details in footnotes on page 12) was GEL 77.5mln in 2Q19 (up 6.1% y-o-y and up 11.1% q-o-q) and GEL 147.2mln in 1H19 (up 2.4% y-o-y). Retail Banking continued to deliver a strong ROAE(13) of 26.9% in 2Q19 (30.6% in 2Q18 and 25.3% in 1Q19) and 26.2% in 1H19 (31.1% in 1H18)

(11) Includes 2,892 and 2,650 POS terminals operating in public transportation network in 2Q19 and 1Q19, respectively

(12) The users that log-in in internet and mobile bank at least once in three months

(13) ROAE adjusted for GEL 3.1mln in 2Q19 (1Q19: GEL 7.1mln) and GEL 10.1mln in 1H19 one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ROAE adjusted for GEL 33.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

CORPORATE AND INVESTMENT BANKING (CIB)

CIB provides (1) loans and other credit facilities to Georgia's large corporate clients and other legal entities, excluding SME and micro businesses; (2) services such as fund transfers and settlements services, currency conversion operations, trade finance services and documentary operations as well as handling savings and term deposits; (3) finance lease facilities through the Bank's leasing operations arm, the Georgian Leasing Company; (4) brokerage services through Galt & Taggart; and (5) Wealth Management private banking services to high-net-worth individuals and offers investment management products in Georgia and internationally through representative offices in Tbilisi, London, Budapest, Istanbul, Tel Aviv and Limassol.

 
 GEL thousands, unless 
  otherwise                                             Change               Change                           Change 
  noted                              2Q19        2Q18    y-o-y        1Q19    q-o-q        1H19        1H18    y-o-y 
 INCOME STATEMENT 
  HIGHLIGHTS(14) 
 Net interest income               47,459      41,718    13.8%      45,679     3.9%      93,138      79,951    16.5% 
 Net fee and commission 
  income                            7,113       6,355    11.9%       8,151   -12.7%      15,264      12,554    21.6% 
 Net foreign currency gain         15,667      10,259    52.7%      13,104    19.6%      28,771      16,903    70.2% 
 Net other income / (expense)       (392)       2,078      NMF       1,386      NMF         994       4,873   -79.6% 
 Operating income                  69,847      60,410    15.6%      68,320     2.2%     138,167     114,281    20.9% 
 Salaries and other employee 
  benefits                       (14,738)    (13,725)     7.4%    (12,439)    18.5%    (27,177)    (26,320)     3.3% 
 Administrative expenses          (4,004)     (3,700)     8.2%     (4,027)    -0.6%     (8,031)     (7,159)    12.2% 
 Depreciation and 
  amortisation                    (1,933)     (1,269)    52.3%     (1,701)    13.6%     (3,634)     (2,578)    41.0% 
 Other operating expenses           (302)       (253)    19.4%       (203)    48.8%       (505)       (396)    27.5% 
 Operating expenses              (20,977)    (18,947)    10.7%    (18,370)    14.2%    (39,347)    (36,453)     7.9% 
 Operating income before cost 
  of risk                          48,870      41,463    17.9%      49,950    -2.2%      98,820      77,828    27.0% 
 Cost of risk                     (6,574)     (5,603)    17.3%     (1,824)      NMF     (8,398)    (10,246)   -18.0% 
 Net operating income before 
  non-recurring items              42,296      35,860    17.9%      48,126   -12.1%      90,422      67,582    33.8% 
 Net non-recurring items                -     (4,930)      NMF        (72)      NMF        (72)     (5,203)   -98.6% 
 Profit before income tax 
  expense and one-off costs        42,296      30,930    36.7%      48,054   -12.0%      90,350      62,379    44.8% 
 Income tax expense               (3,169)     (1,567)   102.2%     (3,864)   -18.0%     (7,032)     (4,010)    75.4% 
 Profit adjusted for one-off 
  costs                            39,127      29,363    33.3%      44,190   -11.5%      83,318      58,369    42.7% 
 One-off termination costs 
  of former CEO and executive 
  management (after tax), 
  one-off 
  demerger related expenses 
  (after tax) and one-off 
  impact 
  of re-measurement of 
  deferred 
  tax balances                      (929)    (12,924)   -92.8%     (3,165)   -70.6%     (4,094)    (12,924)   -68.3% 
 Profit                            38,198      16,439   132.4%      41,025    -6.9%      79,224      45,445    74.3% 
 
 BALANCE SHEET HIGHLIGHTS 
 Net loans and finance lease 
  receivables, currency 
  blended                       3,208,823   2,250,160    42.6%   2,652,838    21.0%   3,208,823   2,250,160    42.6% 
    Net loans and finance 
     lease 
     receivables, GEL             526,572     444,669    18.4%     451,360    16.7%     526,572     444,669    18.4% 
    Net loans and finance 
     lease 
     receivables, FC            2,682,251   1,805,491    48.6%   2,201,478    21.8%   2,682,251   1,805,491    48.6% 
 Client deposits, currency 
  blended                       3,427,166   3,439,716    -0.4%   3,531,840    -3.0%   3,427,166   3,439,716    -0.4% 
    Client deposits, GEL        1,260,869   1,695,890   -25.7%   1,405,892   -10.3%   1,260,869   1,695,890   -25.7% 
    Client deposits, FC         2,166,297   1,743,826    24.2%   2,125,948     1.9%   2,166,297   1,743,826    24.2% 
 Time deposits, currency 
  blended                       1,252,061   1,675,804   -25.3%   1,325,345    -5.5%   1,252,061   1,675,804   -25.3% 
    Time deposits, GEL            403,114     896,482   -55.0%     506,023   -20.3%     403,114     896,482   -55.0% 
    Time deposits, FC             848,947     779,322     8.9%     819,322     3.6%     848,947     779,322     8.9% 
 Current accounts and demand 
  deposits, currency blended    2,175,105   1,763,912    23.3%   2,206,495    -1.4%   2,175,105   1,763,912    23.3% 
    Current accounts and 
     demand 
     deposits, GEL                857,755     799,408     7.3%     899,869    -4.7%     857,755     799,408     7.3% 
    Current accounts and 
     demand 
     deposits, FC               1,317,350     964,504    36.6%   1,306,626     0.8%   1,317,350     964,504    36.6% 
 Letters of credit and 
  guarantees, 
  standalone*                   1,141,715     657,902    73.5%   1,037,779    10.0%   1,141,715     657,902    73.5% 
 Assets under management        2,504,280   1,993,931    25.6%   2,371,002     5.6%   2,504,280   1,993,931    25.6% 
 
 RATIOS 
 ROAE(14)                           22.0%       20.1%                27.1%                24.5%       20.0% 
 Net interest margin, 
  currency 
  blended                            3.3%        3.5%                 3.4%                 3.4%        3.3% 
 Cost of credit risk ratio           0.7%        0.6%                 0.1%                 0.4%        1.0% 
 Cost of funds, currency 
  blended                            4.7%        4.6%                 4.1%                 4.4%        4.5% 
 Loan yield, currency blended        9.5%       10.4%                 9.1%                 9.2%       10.2% 
    Loan yield, GEL                 12.6%       13.2%                11.5%                12.0%       13.0% 
    Loan yield, FC                   8.9%        9.8%                 8.6%                 8.7%        9.6% 
 Cost of deposits, currency 
  blended                            3.7%        4.1%                 3.6%                 3.6%        4.0% 
    Cost of deposits, GEL            5.9%        6.4%                 5.9%                 5.9%        6.3% 
    Cost of deposits, FC             2.2%        2.4%                 2.1%                 2.1%        2.5% 
 Cost of time deposits, 
  currency 
  blended                            5.7%        6.1%                 5.6%                 5.6%        5.9% 
    Cost of time deposits, 
     GEL                             7.6%        7.8%                 7.5%                 7.5%        7.7% 
    Cost of time deposits, FC        4.5%        4.6%                 4.3%                 4.4%        4.6% 
 Current accounts and demand 
  deposits, currency blended         2.4%        2.8%                 2.3%                 2.4%        2.8% 
    Current accounts and 
     demand 
     deposits, GEL                   4.8%        5.3%                 4.8%                 4.8%        5.3% 
    Current accounts and 
     demand 
     deposits, FC                    0.7%        1.0%                 0.7%                 0.7%        1.1% 
 Cost / income ratio(15)            30.0%       31.4%                26.9%                28.5%       31.9% 
 Concentration of top ten 
  clients                            9.1%       10.2%                 9.1%                 9.1%       10.2% 
 

(*) Off-balance sheet item

(14) The income statement adjusted profit excludes GEL 0.9mln in 2Q19 (1Q19: GEL 3.2mln) and GEL 4.1mln in 1H19 one-off employee costs (net-off income tax) related to the former CEO and executive management termination benefits. The amount is comprised of GEL 1.1mln in 2Q19 (1Q19: GEL 2.7mln) and GEL 3.8mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 1.1mln (gross of income tax) excluded from non-recurring items in 1Q19 and in 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 12.9mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances. The ROAE has been adjusted accordingly for all respective periods presented

(15) Cost/income ratio is adjusted for GEL 1.1mln in 2Q19 (1Q19: GEL 2.7mln) and GEL 3.8mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

Performance highlights

-- Corporate and Investment Banking delivered strong quarterly results. CIB continued further growth during the second quarter of 2019 and generated strong net interest income and net fee and commission income during the period, coupled with solid operating efficiencies and asset quality

-- CIB's net interest income increased by 13.8% y-o-y and by 3.9% q-o-q in 2Q19, and by 16.5% y-o-y in 1H19. CIB NIM stood at 3.3% in 2Q19 (down 20bps y-o-y and down 10bps q-o-q) and 3.4% in 1H19 (up 10bps y-o-y). In 2Q19, NIM was down 10bps q-o-q, as 60bps increase in cost of funds was partially offset by 40bps q-o-q growth in currency blended loan yields, while NIM was 20bps down y-o-y, on the back of 90bps decline in currency-blended loan yields coupled with 10bps increase in cost of funds. In the first half of 2019, 10bps y-o-y increase in NIM was supported by 10bps decrease in cost of funds, partially offset by 100bps decline in loan yields y-o-y

-- CIB's net fee and commission income reached GEL 7.1mln in 2Q19, up 11.9% y-o-y and down 12.7% q-o-q, ending the first half of 2019 with GEL 15.3mln fee and commission income, up 21.6% y-o-y. The strong y-o-y increase in net fee and commission income in 2Q19 and 1H19 was largely driven by higher fees from guarantees and letters of credit issued and higher placement fees during 2019

-- CIB's loan book and de-dollarisation. CIB loan portfolio reached GEL 3,208.8mln at 30 June 2019, up 42.6% y-o-y and up 21.0% q-o-q. On a constant currency basis, CIB loan book was up 25.3% y-o-y and up 14.7% q-o-q. The concentration of the top 10 CIB clients stood at 9.1% at 30 June 2019 (10.2% at 30 June 2018 and 9.1% at 31 March 2019). Foreign currency denominated loans represented 83.6% of CIB's loan portfolio at 30 June 2019, compared to 80.2% a year ago and 83.0% at 31 March 2019. The increase in foreign currency denominated loans in 2Q19 y-o-y and q-o-q was partially due to local currency depreciation in the first and second quarters of 2019. At 30 June 2019, 54.5% of CIB loan portfolio was US Dollar denominated, with 38.7% of total CIB loans issued to US Dollar income borrowers and 15.8% to non-US Dollar income borrowers

-- In 2Q19, dollarisation of our CIB deposits increased to 63.2% at 30 June 2019 from 50.7% a year ago and from 60.2% at 31 March 2019. A y-o-y and q-o-q increase in foreign currency denominated deposits was partially due to local currency depreciation in the first and second quarters of 2019. Despite the y-o-y decline in interest rates on local currency deposits in 2Q19 and 1H19, the cost of deposits in local currency still remained well above the cost of foreign currency deposits

-- Net other income. Significant y-o-y decline in net other income in 1H19 was largely driven by net losses from derivative financial instruments (interest rate swap hedges) recorded during the first and second quarters of 2019, partially offset by net gains from investment securities during the same period

-- Cost of credit risk. CIB's cost of credit risk ratio remained well-controlled and stood at 0.7% in 2Q19 (up 10bps y-o-y and up 60bps q-o-q) and at 0.4% in the first half of 2019 (down 60bps y-o-y), primarily driven by the improved quality of the CIB loan portfolio. At the same time, CIB's NPL coverage ratio was 83.7% at 30 June 2019 (87.2% as at 30 June 2018 and 89.4% at 31 March 2019). The slight decline in NPL coverage ratio y-o-y and q-o-q was primarily due to the local currency depreciation in the second quarter of 2019

-- As a result, CIB's profit adjusted for one-off costs (see details in footnotes on page 16) was GEL 39.1mln in 2Q19, up 33.3% y-o-y and down 11.5% q-o-q, and GEL 83.3mln in 1H19, up 42.7% y-o-y. CIB ROAE(16) was 22.0% in 2Q19 (compared to 20.1% a year ago and 27.1% in 1Q19) and 24.5% in 1H19 (compared to 20.0% in 1H18)

(16) ROAE adjusted for GEL 0.9mln in 2Q19 (1Q19: GEL 3.2mln) and GEL 4.1mln in 1H19 one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ROAE adjusted for GEL 12.9mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

Performance highlights of wealth management operations

-- The Investment Management's AUM increased to GEL 2,504.3mln in 2Q19, up 25.6% y-o-y and up 5.6% q-o-q. This includes a) deposits of Wealth Management franchise clients, b) assets held at Bank of Georgia Custody, c) Galt & Taggart brokerage client assets, and d) Global certificates of deposit held by Wealth Management clients. The y-o-y and q-o-q increase in AUM mostly reflected increase in client assets and bond issuance activity at Galt & Taggart

-- Wealth Management deposits reached GEL 1,278.6mln in 2Q19, up 17.7% y-o-y and up 2.9% q-o-q, growing at a compound annual growth rate (CAGR) of 11.7% over the last five-year period. The cost of deposits was 3.3% in 2Q19, down 20bps y-o-y and up 20bps q-o-q, and 3.2% in 1H19, down 30bps y-o-y

-- We served 1,531 wealth management clients from 74 countries as of 30 June 2019, compared to 1,490 clients as of 30 June 2018 and 1,535 clients as of 31 March 2019

-- In January 2019, Bank of Georgia opened a brand new office in the centre of Tbilisi, dedicated to serving its wealth management clients. The office resides in a historic 19th century building, which originally used to house the First Credit Society of Georgia and is considered to be the first residence of a local banking institution. The design concept was derived from the integration of Georgian culture with western values, while the artistic expression of the building has been left intact. The new office coincides with a creation of a new brand identity of the Bank's wealth management business and is in line with its strategy to become the regional hub for private banking

-- Galt & Taggart, which brings under one brand corporate advisory, debt and equity capital markets research and brokerage services, continues to develop local capital markets in Georgia

-- During the first half of 2019 Galt & Taggart acted as a:

- lead manager of JSC Microfinance Organisation Crystal's GEL 15mln local public bond issuance due in 2021, in February 2019

- co-manager of Bank of Georgia's inaugural US$ 100mln international Additional Tier 1 bond issuance, in March 2019

- lead manager of JSC Microfinance Organisation Swiss Capital's GEL 10mln local public bond issuance due in 2021, in March 2019

- lead manager for European Bank for Reconstruction and Development (EBRD), facilitating GEL 90mln local private bond issuance due in 2023, in March 2019

- lead manager for Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. (FMO), facilitating GEL 26mln local private bond issuance due in 2024, in March 2019

- buy-side advisor for Bank of Georgia Group on acquisition of extra.ge online platform, in May 2019

- lead manager for Black Sea Trade and Development Bank (BSTDB), facilitating GEL 10mln local private bond issuance due in 2022, in June 2019

- sole sell-side advisor of Linnaeus Capital Partners B.V. on a sale of 100% shareholding in Lilo1- logistics center, in June 2019

- lead manager for EBRD, facilitating c.GEL 28mln local private bond issuance due in 2024, in July 2019

-- In February 2019, Global Finance Magazine named Galt & Taggart Best Investment Bank in Georgia for the fifth consecutive year

-- In February 2019, Galt & Taggart together with JSC Bank of Georgia organised a conference under "G&T Industry Series" to discuss the findings of Galt & Taggart's research on Georgia's energy sector with an emphasis on ongoing reforms and their impact on the sector development. The conference gathered together all stakeholders including high level representatives from the Government, private sector and IFIs. A follow-up conference was held in April 2019 due to high interest from the Government and private sector participants. The Deputy Minister of Economy and Sustainable Development, Head of energy regulatory commission and Head of Georgian Energy Development Fund presented the Government's vision of the reform process, while Galt & Taggart focused on the reform vision from private sector perspective. Presentations were followed by panel discussions with key market players affected by the reform process

-- In May 2019, Galt & Taggart participated in a competitive tender process and won a three year exclusive mandate to manage the private pension fund of a large Georgian corporate client

SELECTED FINANCIAL INFORMATION

 
INCOME STATEMENT                     Bank of Georgia Group                              Banking Business                       Discontinued Operations           Eliminations 
(QUARTERLY)                               Consolidated 
GEL thousands, unless                         Change             Change                        Change             Change                Change        Change 
 otherwise noted             2Q19       2Q18   y-o-y       1Q19   q-o-q       2Q19       2Q18   y-o-y       1Q19   q-o-q  2Q19    2Q18   y-o-y  1Q19   q-o-q  2Q19     2Q18  1Q19 
 
Interest income           342,224    327,496    4.5%    334,735    2.2%    342,224    329,880    3.7%    334,735    2.2%     -       -       -     -       -     -  (2,384)     - 
Interest expense        (160,602)  (139,756)   14.9%  (151,794)    5.8%  (160,602)  (143,298)   12.1%  (151,794)    5.8%     -       -       -     -       -     -    3,542     - 
Net interest income       181,622    187,740   -3.3%    182,941   -0.7%    181,622    186,582   -2.7%    182,941   -0.7%     -       -       -     -       -     -    1,158     - 
Fee and commission 
 income                    68,025     55,332   22.9%     62,531    8.8%     68,025     55,693   22.1%     62,531    8.8%     -       -       -     -       -     -    (361)     - 
Fee and commission 
 expense                 (24,758)   (17,680)   40.0%   (20,351)   21.7%   (24,758)   (17,846)   38.7%   (20,351)   21.7%     -       -       -     -       -     -      166     - 
Net fee and commission 
 income                    43,267     37,652   14.9%     42,180    2.6%     43,267     37,847   14.3%     42,180    2.6%     -       -       -     -       -     -    (195)     - 
Net foreign currency 
 gain                      36,700     25,427   44.3%     30,025   22.2%     36,700     25,000   46.8%     30,025   22.2%     -       -       -     -       -     -      427     - 
Net other income / 
 (expense)                (4,260)      3,379     NMF      3,568     NMF    (4,260)      3,705     NMF      3,568     NMF     -       -       -     -       -     -    (326)     - 
Operating income          257,329    254,198    1.2%    258,714   -0.5%    257,329    253,134    1.7%    258,714   -0.5%     -       -       -     -       -     -    1,064     - 
 Salaries and other 
  employee 
  benefits (excluding 
  one-offs)              (57,982)   (53,505)    8.4%   (52,418)   10.6%   (57,982)   (53,925)    7.5%   (52,418)   10.6%     -       -       -     -       -     -      420     - 
 One-off termination 
  costs 
  of former executive 
  management 
  (1)                     (4,570)          -     NMF    (7,842)  -41.7%    (4,570)          -     NMF    (7,842)  -41.7%     -       -       -     -       -     -        -     - 
Salaries and other 
 employee 
 benefits                (62,552)   (53,505)   16.9%   (60,260)    3.8%   (62,552)   (53,925)   16.0%   (60,260)    3.8%     -       -       -     -       -     -      420     - 
Administrative 
 expenses                (22,033)   (26,717)  -17.5%   (22,741)   -3.1%   (22,033)   (26,862)  -18.0%   (22,741)   -3.1%     -       -       -     -       -     -      145     - 
Depreciation and 
 amortisation            (17,295)   (11,392)   51.8%   (15,688)   10.2%   (17,295)   (11,392)   51.8%   (15,688)   10.2%     -       -       -     -       -     -        -     - 
Other operating 
 expenses                 (1,248)      (965)   29.3%    (1,080)   15.6%    (1,248)      (965)   29.3%    (1,080)   15.6%     -       -       -     -       -     -        -     - 
Operating expenses      (103,128)   (92,579)   11.4%   (99,769)    3.4%  (103,128)   (93,144)   10.7%   (99,769)    3.4%     -       -       -     -       -     -      565     - 
Profit from associates        254        376  -32.4%        188   35.1%        254        376  -32.4%        188   35.1%     -       -       -     -       -     -        -     - 
Operating income 
 before 
 cost of risk             154,455    161,995   -4.7%    159,133   -2.9%    154,455    160,366   -3.7%    159,133   -2.9%     -       -       -     -       -     -    1,629     - 
Expected credit loss 
 / impairment charge 
 on 
 loans to customers      (32,436)   (33,534)   -3.3%   (40,117)  -19.1%   (32,436)   (33,534)   -3.3%   (40,117)  -19.1%     -       -       -     -       -     -        -     - 
Expected credit loss 
 / impairment charge 
 on 
 finance lease 
 receivables                (557)      (266)  109.4%      (446)   24.9%      (557)      (266)  109.4%      (446)   24.9%     -       -       -     -       -     -        -     - 
Other expected credit 
 loss / impairment 
 charge 
 on other assets and 
 provisions               (2,483)    (3,726)  -33.4%    (2,089)   18.9%    (2,483)    (3,726)  -33.4%    (2,089)   18.9%     -       -       -     -       -     -        -     - 
Cost of risk             (35,476)   (37,526)   -5.5%   (42,652)  -16.8%   (35,476)   (37,526)   -5.5%   (42,652)  -16.8%     -       -       -     -       -     -        -     - 
Net operating income 
 before non-recurring 
 items                    118,979    124,469   -4.4%    116,481    2.1%    118,979    122,840   -3.1%    116,481    2.1%     -       -       -     -       -     -    1,629     - 
 Net non-recurring 
  items 
  (excluding one-offs)    (2,538)   (13,591)  -81.3%    (1,575)   61.1%    (2,538)   (13,763)  -81.6%    (1,575)   61.1%     -       -       -     -       -     -      172     - 
 One-off termination 
  costs 
  of former CEO, 
  one-off 
  demerger related 
  expenses 
  (2)                           -   (30,284)     NMF    (3,985)     NMF          -   (30,284)     NMF    (3,985)     NMF     -       -       -     -       -     -        -     - 
Net non-recurring 
 items                    (2,538)   (43,875)  -94.2%    (5,560)  -54.4%    (2,538)   (44,047)  -94.2%    (5,560)  -54.4%     -       -       -     -       -     -      172     - 
Profit before income 
 tax expense from 
 continuing 
 operations               116,441     80,594   44.5%    110,921    5.0%    116,441     78,793   47.8%    110,921    5.0%     -       -       -     -       -     -    1,801     - 
 Income tax expense 
  (excluding 
  one-offs)               (9,871)    (5,461)   80.8%   (10,536)   -6.3%    (9,871)    (5,461)   80.8%   (10,536)   -6.3%     -       -       -     -       -     -        -     - 
 Income tax benefit 
  related 
  to one-off 
  termination 
  costs, one-off 
  demerger 
  related expenses and 
  one-off impact of 
  re-measurement 
  of deferred tax 
  balances 
  (3)                         574   (22,257)     NMF      1,587  -63.8%        574   (22,257)     NMF      1,587  -63.8%     -       -       -     -       -     -        -     - 
Income tax expense        (9,297)   (27,718)  -66.5%    (8,949)    3.9%    (9,297)   (27,718)  -66.5%    (8,949)    3.9%     -       -       -     -       -     -        -     - 
Profit from continuing 
 operations               107,144     52,876  102.6%    101,972    5.1%    107,144     51,075  109.8%    101,972    5.1%     -       -       -     -       -     -    1,801     - 
Profit from 
 discontinued 
 operations                     -     78,961     NMF          -       -          -          -       -          -       -     -  80,762     NMF     -       -     -  (1,801)     - 
Profit                    107,144    131,837  -18.7%    101,972    5.1%    107,144     51,075  109.8%    101,972    5.1%     -  80,762     NMF     -       -     -        -     - 
 
One-off items 
 (1)+(2)+(3)              (3,996)   (52,541)  -92.4%   (10,240)  -61.0%    (3,996)   (52,541)  -92.4%   (10,240)  -61.0% 
 
 
Profit attributable 
to: 
  - shareholders of 
   the 
   Group                  106,642    125,686  -15.2%    101,512    5.1%    106,642     50,932  109.4%    101,512    5.1%     -  74,754     NMF     -       -     -        -     - 
  - non-controlling 
   interests                  502      6,151  -91.8%        460    9.1%        502        143     NMF        460    9.1%     -   6,008     NMF     -       -     -        -     - 
 
Profit from continuing 
operations 
attributable 
to: 
  - shareholders of 
   the 
   Group                  106,642     52,733  102.2%    101,512    5.1%    106,642     50,932  109.4%    101,512    5.1%     -       -       -     -       -     -    1,801     - 
  - non-controlling 
   interests                  502        143     NMF        460    9.1%        502        143     NMF        460    9.1%     -       -       -     -       -     -        -     - 
 
Profit from 
discontinued 
operations 
attributable 
to: 
  - shareholders of 
   the 
   Group                        -     72,953     NMF          -       -          -          -       -          -       -     -  74,754     NMF     -       -     -  (1,801)     - 
  - non-controlling 
   interests                    -      6,008     NMF          -       -          -          -       -          -       -     -   6,008     NMF     -       -     -        -     - 
 
Earnings per share 
 (basic)                     2.23       2.83  -21.2%       2.12    5.2% 
  - earnings per share 
   from continuing 
   operations                2.23       1.19   87.4%       2.12    5.2% 
  - earnings per share 
   from discontinued 
   operations                   -       1.64     NMF          -       - 
 
Earnings per share 
 (diluted)                   2.23       2.80  -20.4%       2.11    5.7% 
  - earnings per share 
   from continuing 
   operations                2.23       1.17   90.6%       2.11    5.7% 
  - earnings per share 
   from discontinued 
   operations                   -       1.63     NMF          -       - 
 
 
INCOME STATEMENT              Bank of Georgia               Banking Business        Discontinued Operations      Eliminations 
(HALF-YEAR)                  Group Consolidated 
GEL thousands, unless 
 otherwise                                    Change                        Change                   Change                 Change 
 noted                       1H19       1H18   y-o-y       1H19       1H18   y-o-y  1H19     1H18     y-o-y  1H19     1H18   y-o-y 
 
Interest income           676,959    638,771    6.0%    676,959    643,559   5.20%     -        -         -     -  (4,788)     NMF 
Interest expense        (312,396)  (269,791)   15.8%  (312,396)  (276,728)  12.90%     -        -         -     -    6,937     NMF 
Net interest income       364,563    368,980   -1.2%    364,563    366,831   -0.6%     -        -         -     -    2,149     NMF 
Fee and commission 
 income                   130,556    106,005   23.2%    130,556    106,906   22.1%     -        -         -     -    (901)     NMF 
Fee and commission 
 expense                 (45,109)   (34,168)   32.0%   (45,109)   (34,549)   30.6%     -        -         -     -      381     NMF 
Net fee and commission 
 income                    85,447     71,837   18.9%     85,447     72,357   18.1%     -        -         -     -    (520)     NMF 
Net foreign currency 
 gain                      66,724     38,577   73.0%     66,724     39,252   70.0%     -        -         -     -    (675)     NMF 
Net other income / 
 (expense)                  (691)      8,898     NMF      (691)      9,451     NMF     -        -         -     -    (553)     NMF 
Operating income          516,043    488,292    5.7%    516,043    487,891    5.8%     -        -         -     -      401     NMF 
 Salaries and other 
  employee 
  benefits (excluding 
  one-offs)             (110,399)  (102,323)    7.9%  (110,399)  (103,378)    6.8%     -        -         -     -    1,055     NMF 
 One-off termination 
  costs of 
  former executive 
  management 
  (1)                    (12,412)          -     NMF   (12,412)          -     NMF     -        -         -     -        -       - 
Salaries and other 
 employee 
 benefits               (122,811)  (102,323)   20.0%  (122,811)  (103,378)   18.8%     -        -         -     -    1,055     NMF 
Administrative 
 expenses                (44,774)   (51,885)  -13.7%   (44,774)   (52,495)  -14.7%     -        -         -     -      610     NMF 
Depreciation and 
 amortisation            (32,983)   (22,914)   43.9%   (32,983)   (22,914)   43.9%     -        -         -     -        -       - 
Other operating 
 expenses                 (2,329)    (1,736)   34.2%    (2,329)    (1,736)   34.2%     -        -         -     -        -       - 
Operating expenses      (202,897)  (178,858)   13.4%  (202,897)  (180,523)   12.4%     -        -         -     -    1,665     NMF 
Profit from associates        442        695  -36.4%        442        695  -36.4%     -        -         -     -        -       - 
Operating income 
 before cost 
 of risk                  313,588    310,129    1.1%    313,588    308,063    1.8%     -        -         -     -    2,066     NMF 
Expected credit loss / 
 impairment 
 charge on loans to 
 customers               (72,553)   (70,211)    3.3%   (72,553)   (70,211)    3.3%     -        -         -     -        -       - 
Expected credit loss / 
 impairment 
 charge on finance 
 lease receivables        (1,003)      (253)     NMF    (1,003)      (253)     NMF     -        -         -     -        -       - 
Other expected credit 
 loss 
 / impairment charge 
 on other 
 assets and provisions    (4,573)      (876)     NMF    (4,573)      (876)     NMF     -        -         -     -        -       - 
Cost of risk             (78,129)   (71,340)    9.5%   (78,129)   (71,340)    9.5%     -        -         -     -        -       - 
Net operating income 
 before 
 non-recurring items      235,459    238,789   -1.4%    235,459    236,723   -0.5%     -        -         -     -    2,066     NMF 
 Net non-recurring 
  items (excluding 
  one-offs)               (4,112)   (16,539)  -75.1%    (4,112)   (16,711)  -75.4%     -        -         -     -      172     NMF 
 One-off termination 
  costs of 
  former CEO, one-off 
  demerger 
  related expenses (2)    (3,985)   (30,284)  -86.8%    (3,985)   (30,284)  -86.8%     -        -         -     -        -       - 
Net non-recurring 
 items                    (8,097)   (46,823)  -82.7%    (8,097)   (46,995)  -82.8%     -        -         -     -      172     NMF 
Profit before income 
 tax expense 
 from continuing 
 operations               227,362    191,966   18.4%    227,362    189,728   19.8%     -        -         -     -    2,238     NMF 
 Income tax expense 
  (excluding 
  one-offs)              (20,407)   (14,744)   38.4%   (20,407)   (14,744)   38.4%     -        -         -     -        -       - 
 Income tax benefit 
  related 
  to one-off 
  termination costs, 
  one-off demerger 
  related expenses 
  and one-off impact 
  of re-measurement 
  of deferred tax 
  balances (3)              2,161   (22,257)     NMF      2,161   (22,257)     NMF     -        -         -     -        -       - 
Income tax expense       (18,246)   (37,001)  -50.7%   (18,246)   (37,001)  -50.7%     -        -         -     -        -       - 
Profit from continuing 
 operations               209,116    154,965   34.9%    209,116    152,727   36.9%     -        -         -     -    2,238     NMF 
Profit from 
 discontinued 
 operations                     -    107,899     NMF          -          -       -     -  110,137       NMF     -  (2,238)     NMF 
Profit                    209,116    262,864  -20.4%    209,116    152,727   36.9%     -  110,137       NMF     -        -       - 
 
One-off items 
 (1)+(2)+(3)             (14,236)   (52,541)  -72.9%   (14,236)   (52,541)  -72.9% 
 
 
Profit attributable 
to: 
  - shareholders of 
   the Group              208,154    244,106  -14.7%    208,154    152,184   36.8%     -   91,922       NMF     -        -       - 
  - non-controlling 
   interests                  962     18,758  -94.9%        962        543   77.2%     -   18,215       NMF     -        -       - 
 
Profit from continuing 
operations 
attributable to: 
  - shareholders of 
   the Group              208,154    154,422   34.8%    208,154    152,184   36.8%     -        -         -     -    2,238     NMF 
  - non-controlling 
   interests                  962        543   77.2%        962        543   77.2%     -        -         -     -        -       - 
 
Profit from 
discontinued 
operations 
attributable to: 
  - shareholders of 
   the Group                    -     89,684     NMF          -          -       -     -   91,922       NMF     -  (2,238)     NMF 
  - non-controlling 
   interests                    -     18,215     NMF          -          -       -     -   18,215       NMF     -        -       - 
 
Earnings per share 
 (basic)                     4.35       5.95  -26.9% 
  - earnings per share 
   from continuing 
   operations                4.35       3.76   15.7% 
  - earnings per share          -       2.19     NMF 
  from discontinued 
  operations 
 
Earnings per share 
 (diluted)                   4.34       5.88  -26.2% 
  - earnings per share 
   from continuing 
   operations                4.34       3.72   16.7% 
  - earnings per share          -       2.16     NMF 
   from discontinued 
   operations 
 

BANK OF GEORGIA GROUP PLC

 
 BALANCE SHEET                                   Bank of Georgia Group Consolidated 
 GEL thousands, unless otherwise           Jun-19       Jun-18   Change       Mar-19   Change 
  noted                                                           y-o-y                 q-o-q 
 
 Cash and cash equivalents                936,106    1,546,863   -39.5%    1,162,168   -19.5% 
 Amounts due from credit 
  institutions                          1,704,701      993,862    71.5%    1,391,630    22.5% 
 Investment securities                  1,896,738    1,725,692     9.9%    1,948,592    -2.7% 
 Loans to customers and finance 
  lease receivables                    10,579,710    8,108,647    30.5%    9,570,691    10.5% 
 Accounts receivable and 
  other loans                               3,688        4,878   -24.4%        3,134    17.7% 
 Prepayments                               36,026       74,238   -51.5%       31,621    13.9% 
 Inventories                               11,748       11,085     6.0%       11,756    -0.1% 
 Right-of-use assets                      105,874            -      NMF       91,248    16.0% 
 Investment property                      178,764      218,224   -18.1%      169,328     5.6% 
 Property and equipment                   358,921      313,627    14.4%      349,728     2.6% 
 Goodwill                                  33,351       33,351     0.0%       33,351     0.0% 
 Intangible assets                         93,515       61,462    52.2%       87,005     7.5% 
 Income tax assets                          5,080       21,792   -76.7%       19,446   -73.9% 
 Other assets                             149,233      125,615    18.8%      144,343     3.4% 
 Assets held for sale                      40,544            -      NMF       40,528     0.0% 
 Total assets                          16,133,999   13,239,336    21.9%   15,054,569     7.2% 
 Client deposits and notes              8,855,616    7,174,234    23.4%    8,393,861     5.5% 
 Amounts due to credit institutions     2,960,519    2,740,595     8.0%    2,463,408    20.2% 
 Debt securities issued                 2,137,239    1,527,452    39.9%    2,045,428     4.5% 
 Lease liabilities                        100,172            -      NMF       78,364    27.8% 
 Accruals and deferred income              34,748       33,397     4.0%       48,449   -28.3% 
 Income tax liabilities                    30,361       43,762   -30.6%       37,396   -18.8% 
 Other liabilities                         97,125       52,231    86.0%       68,883    41.0% 
 Total liabilities                     14,215,780   11,571,671    22.8%   13,135,789     8.2% 
 Share capital                              1,618        1,790    -9.6%        1,618     0.0% 
 Additional paid-in capital               493,890      463,130     6.6%      495,452    -0.3% 
 Treasury shares                             (49)         (41)    19.5%         (42)    16.7% 
 Other reserves                            46,744       26,268    78.0%       36,474    28.2% 
 Retained earnings                      1,367,632    1,169,364    17.0%    1,376,834    -0.7% 
 Total equity attributable 
  to shareholders of the Group          1,909,835    1,660,511    15.0%    1,910,336     0.0% 
 Non-controlling interests                  8,384        7,154    17.2%        8,444    -0.7% 
 Total equity                           1,918,219    1,667,665    15.0%    1,918,780     0.0% 
 Total liabilities and equity          16,133,999   13,239,336    21.9%   15,054,569     7.2% 
 Book value per share                       40.06        34.75    15.3%        39.88     0.5% 
 

BELARUSKY NARODNY BANK (BNB)

 
                                                     Change             Change                         Change 
 INCOME STATEMENT, HIGHLIGHTS       2Q19      2Q18    y-o-y      1Q19    q-o-q       1H19       1H18    y-o-y 
 GEL thousands, unless 
  otherwise stated 
 
  Net interest income              6,360     6,354     0.1%     6,585    -3.4%     12,945     12,898     0.4% 
  Net fee and commission 
   income                          1,798     2,503   -28.2%     1,812    -0.8%      3,611      4,780   -24.5% 
  Net foreign currency 
   gain                            4,779     4,182    14.3%     3,955    20.8%      8,734      7,459    17.1% 
  Net other income                   169       192   -12.0%       147    15.0%        314        309     1.6% 
  Operating income                13,106    13,231    -0.9%    12,499     4.9%     25,604     25,446     0.6% 
  Operating expenses             (8,890)   (8,184)     8.6%   (7,847)    13.3%   (16,737)   (15,905)     5.2% 
  Operating income before 
   cost of risk                    4,216     5,047   -16.5%     4,652    -9.4%      8,867      9,541    -7.1% 
  Cost of risk                   (1,536)   (2,305)   -33.4%   (1,442)     6.5%    (2,977)    (3,022)    -1.5% 
  Net non-recurring items           (13)       (5)      NMF      (50)   -74.0%       (63)      (706)   -91.1% 
  Profit before income 
   tax expense                     2,667     2,737    -2.6%     3,160   -15.6%      5,827      5,813     0.2% 
  Income tax expense               (379)     (721)   -47.4%     (571)   -33.6%      (950)    (1,498)   -36.6% 
  Profit                           2,288     2,016    13.5%     2,589   -11.6%      4,877      4,315    13.0% 
 
 
 BALANCE SHEET, HIGHLIGHTS      Jun-19    Jun-18   Change    Mar-19   Change 
                                                    y-o-y              q-o-q 
 GEL thousands, unless 
  otherwise stated 
 
 Cash and cash equivalents      93,097    86,932     7.1%    79,497    17.1% 
 Amounts due from credit 
  institutions                  18,301    10,719    70.7%    20,556   -11.0% 
 Investment securities         128,486    38,815      NMF   116,082    10.7% 
 Loans to customers and 
  finance lease receivables    512,126   394,502    29.8%   451,665    13.4% 
 Other assets                   57,098    40,833    39.8%    54,001     5.7% 
 Total assets                  809,108   571,801    41.5%   721,801    12.1% 
 Client deposits and notes     503,309   297,756    69.0%   425,563    18.3% 
 Amounts due to credit 
  institutions                 146,855   161,332    -9.0%   144,314     1.8% 
 Debt securities issued         50,238    32,453    54.8%    53,846    -6.7% 
 Other liabilities               7,044     3,723    89.2%     9,477   -25.7% 
 Total liabilities             707,446   495,264    42.8%   633,200    11.7% 
 Total equity                  101,662    76,537    32.8%    88,601    14.7% 
 Total liabilities and 
  equity                       809,108   571,801    41.5%   721,801    12.1% 
 
 
 BANKING BUSINESS KEY RATIOS                  2Q19        2Q18        1Q19        1H19        1H18 
 Profitability 
  ROAA, annualised(17)                        2.9%        3.1%        3.1%        3.0%        3.2% 
  ROAA, annualised (unadjusted)               2.8%        1.6%        2.8%        2.8%        2.4% 
  ROAE, annualised(17)                       22.9%       25.4%       24.5%       23.7%       25.7% 
       RB ROAE(17)                           26.9%       30.6%       25.3%       26.2%       31.1% 
       CIB ROAE(17)                          22.0%       20.1%       27.1%       24.5%       20.0% 
  ROAE, annualised (unadjusted)              22.1%       12.5%       22.2%       22.2%       19.1% 
  Net interest margin, annualised             5.4%        6.9%        5.8%        5.6%        7.0% 
       RB NIM                                 5.9%        7.9%        6.4%        6.1%        8.1% 
       CIB NIM                                3.3%        3.5%        3.4%        3.4%        3.3% 
  Loan yield, annualized                     11.8%       14.0%       12.2%       12.0%       13.9% 
       RB Loan yield                         12.9%       15.7%       13.6%       13.2%       15.8% 
       CIB Loan yield                         9.5%       10.4%        9.1%        9.2%       10.2% 
  Liquid assets yield, annualised             3.4%        3.8%        3.8%        3.6%        3.7% 
  Cost of funds, annualized                   4.8%        5.0%        4.8%        4.8%        4.9% 
  Cost of client deposits and 
   notes, annualised                          3.3%        3.6%        3.3%        3.3%        3.5% 
       RB Cost of client deposits 
        and notes                             3.0%        2.9%        3.0%        3.0%        2.9% 
       CIB Cost of client deposits 
        and notes                             3.7%        4.1%        3.6%        3.6%        4.0% 
  Cost of amounts due to credit 
   institutions, annualised                   7.2%        7.2%        7.6%        7.3%        7.0% 
  Cost of debt securities issued              8.1%        7.7%        7.8%        7.9%        7.8% 
  Operating leverage, y-o-y(18)              -4.2%        4.1%        5.0%        0.3%        0.2% 
  Operating leverage, q-o-q(18)              -7.7%        1.2%        3.6%        0.0%        0.0% 
 Efficiency 
  Cost / Income(18)                          38.3%       36.8%       35.5%       36.9%       37.0% 
       RB Cost / Income(18)                  37.8%       36.5%       35.5%       36.6%       36.6% 
       CIB Cost /Income(18)                  30.0%       31.4%       26.9%       28.5%       31.9% 
  Cost / Income (unadjusted)                 40.1%       36.8%       38.6%       39.3%       37.0% 
 Liquidity 
  NBG liquidity ratio (minimum 
   requirement 30%)                          37.0%       30.2%       36.7%       37.0%       30.2% 
  NBG liquidity coverage ratio 
   (minimum requirement 100%)               114.3%      129.8%      133.1%      114.3%      129.8% 
  Liquid assets to total liabilities         31.9%       36.9%       34.3%       31.9%       36.9% 
  Net loans to client deposits 
   and notes                                119.5%      113.0%      114.0%      119.5%      113.0% 
  Net loans to client deposits 
   and notes + DFIs                         104.7%       97.3%       98.6%      104.7%       97.3% 
  Leverage (times)                             7.4         6.9         6.8         7.4         6.9 
 Asset quality: 
  NPLs (in GEL)                            347,285     283,768     326,127     347,285     283,768 
  NPLs to gross loans to clients              3.2%        3.4%        3.3%        3.2%        3.4% 
  NPL coverage ratio                         88.1%       99.4%       92.2%       88.1%       99.4% 
  NPL coverage ratio, adjusted 
   for discounted value of collateral       131.5%      142.8%      132.6%      131.5%      142.8% 
  Cost of credit risk, annualised             1.3%        1.6%        1.7%        1.5%        1.7% 
       RB Cost of credit risk                 1.6%        2.0%        2.4%        2.0%        2.1% 
       CIB Cost of credit risk                0.7%        0.6%        0.1%        0.4%        1.0% 
 Capital adequacy: 
  NBG (Basel III) CET1 capital 
   adequacy ratio                            11.0%       12.5%       12.7%       11.0%       12.5% 
  Minimum regulatory requirement              9.6%        8.0%        9.6%        9.6%        8.0% 
  NBG (Basel III) Tier I capital 
   adequacy ratio                            13.3%       12.5%       12.7%       13.3%       12.5% 
    Minimum regulatory requirement           11.6%        9.9%       11.6%       11.6%        9.9% 
  NBG (Basel III) Total capital 
   adequacy ratio                            16.7%       17.5%       17.1%       16.7%       17.5% 
    Minimum regulatory requirement           16.1%       15.0%       16.1%       16.1%       15.0% 
 
 Selected operating data: 
  Total assets per FTE                       2,184       1,821       2,017       2,184       1,821 
  Number of active branches, 
   of which:                                   276         284         276         276         284 
   - Express branches (including 
    Metro)                                     167         168         166         167         168 
   - Bank of Georgia branches                   97         104          98          97         104 
   - Solo lounges                               12          12          12          12          12 
  Number of ATMs                               890         856         886         890         856 
  Number of cards outstanding, 
   of which:                             2,122,006   2,235,122   2,139,239   2,122,006   2,235,122 
   - Debit cards                         1,634,843   1,607,087   1,627,070   1,634,843   1,607,087 
   - Credit cards                          487,163     628,035     512,169     487,163     628,035 
  Number of POS terminals(19)               19,667      12,816      17,684      19,667      12,816 
 
    FX Rates: 
  GEL/US$ exchange rate (period-end)        2.8687      2.4516      2.6914 
  GEL/GBP exchange rate (period-end)        3.6384      3.2209      3.5147 
 
 
                                Jun-19   Jun-18   Mar-19 
 Full time employees (FTE), 
  of which:                      7,386    7,270    7,465 
  - Full time employees, BOG 
   standalone                    5,786    5,689    5,886 
  - Full time employees, BNB       632      699      644 
  - Full time employees, BB 
   other                           968      882      935 
 
 
 Shares outstanding              Jun-19       Jun-18       Mar-19 
 Ordinary shares             47,669,887   47,779,684   47,899,817 
 Treasury shares              1,499,541    1,389,746    1,269,611 
 Total shares outstanding    49,169,428   49,169,430   49,169,428 
 

(17) 2Q19, 1Q19 and 1H19 ratios adjusted for one-off employee costs related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ratios adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances

(18) 2Q19, 1Q19 and 1H19 results adjusted for one-off employee costs related to termination benefits of the former executive management

(19) Includes 2,892 and 2,650 POS terminals operating in public transportation network in 2Q19 and 1Q19, respectively

PRINCIPAL RISKS AND UNCERTAINTIES

Understanding our risks

In the Group's 2018 Annual Report and Accounts we disclosed the principal risks and uncertainties and their potential impact, as well as the trends and outlook associated with these risks and the actions we take to mitigate these risks. We have updated this disclosure to reflect recent developments and this is set out in full below. If any of the following risks occur, the Group's business, financial condition, results of operations or prospects could be materially affected. The order in which the principal risks and uncertainties appear does not denote their order of priority. It is not possible to fully mitigate all of our risks. Any system of risk management and internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The risks and uncertainties described below may not be the only ones the Group faces. Additional risks and uncertainties, including those that the Group is currently not aware of or deems immaterial, may also result in decreased revenues, incurred expenses or other events that could result in a decline in the value of the Group's securities.

 
 CURRENCY AND MACROECONOMIC ENVIRONMENT 
 PRINCIPAL RISK   Macroeconomic factors relating to Georgia, including 
  / UNCERTAINTY    depreciation of the Lari against the US Dollar, may 
                   have a material impact on our loan book. 
                 -------------------------------------------------------------------- 
 KEY DRIVERS      The Group's operations are primarily located in, and 
  / TRS         most of its revenue is sourced from, Georgia. Macroeconomic 
                   factors relating to Georgia, such as changes in GDP, 
                   inflation and interest rates, may have a material impact 
                   on the quality of our loan portfolio, loan losses, our 
                   margins, and customer demand for our products and services. 
                   The Georgian economy delivered a solid 4.9% estimated 
                   real GDP growth in the first half of 2019, after the 
                   real GDP growth of 4.7% in 2018 and 4.8% growth in 2017, 
                   according to Geostat. Uncertain and volatile global 
                   economic conditions could have substantial political 
                   and macroeconomic ramifications globally which in turn 
                   could impact the Georgian economy. 
                   In the first half of 2019, the Lari depreciated against 
                   the US Dollar by 7.2%, after depreciating by 3.3% in 
                   2018. The volatility of Lari against the Dollar has 
                   affected, and may continue to adversely affect, the 
                   quality of our loan portfolio, as well as increase the 
                   cost of credit risk and expected credit loss/impairment 
                   provisions. The creditworthiness of our customers may 
                   be adversely affected by the depreciation of the Lari 
                   against the US Dollar, which could result in them having 
                   difficulty repaying their loans. The depreciation of 
                   the Lari may also adversely affect the value of our 
                   customers' collateral. 
                   At 30 June 2019, approximately 83.6% and 45.9% of our 
                   Corporate and Investment Banking and Retail Banking 
                   loans, respectively, were denominated in foreign currency 
                   (predominantly US Dollar), while US Dollar income revenue 
                   loans covered 5.8% of Retail Banking gross loans and 
                   38.7% of Corporate and Investment Banking gross loans. 
                   Our cost of credit risk was 1.5% in the first half of 
                   2019 compared to 1.7% in the first half of 2018. 
                 -------------------------------------------------------------------- 
 MITIGATION       The Group continuously monitors market conditions and 
                   reviews market changes, and also performs stress and 
                   scenario testing to test its position under adverse 
                   economic conditions, including adverse currency movements. 
                   The Bank's Asset and Liability Management Committee 
                   sets our open currency position limits and the Bank's 
                   proprietary trading position limits, which are currently 
                   more conservative than those imposed by the National 
                   Bank of Georgia (NBG), our regulator. The Treasury department 
                   manages our open currency position on a day-to-day basis. 
                   The open currency position is also monitored by the 
                   Bank's Quantitative Risk Management and Risk Analytics 
                   department. 
                   In order to assess the creditworthiness of our customers, 
                   we take into account currency volatility when there 
                   is a currency mismatch between the customer's loan and 
                   the revenue. We allocate 75% additional capital to the 
                   foreign currency loans of clients, whose source of income 
                   is denominated in Lari. 
                   The Bank's Credit Committees and Credit Risk department 
                   set counterparty limits by using a credit risk classification 
                   and scoring system for approving individual transactions. 
                   The credit quality review process is continuous and 
                   provides early identification of possible changes in 
                   the creditworthiness of customers, including regular 
                   collateral revaluations, potential losses and corrective 
                   actions needed to reduce risk, which may include obtaining 
                   additional collateral in accordance with underlying 
                   loan agreements. 
                   Since 2016, NBG has actively implemented various measures 
                   to de-dollarise the Georgian economy. In January 2019, 
                   in order to hedge the borrowers against foreign currency 
                   risks, NBG raised a threshold of small size loans that 
                   must be issued only in local currency from GEL 100,000 
                   to GEL 200,000. 
                   Among NBG's initiatives towards de-dollarisation and 
                   increasing access to long-term lending in the local 
                   currency is Liquidity Coverage Ratio (LCR) under Basel 
                   III, effective since September 2017. NBG's preferential 
                   treatment for Georgian Lari is translated into 75% LCR 
                   for the local currency high quality liquid assets, while 
                   the mandatory ratio stands at 100% for the foreign currency 
                   as well as for all currencies in total. 
                   Moreover, NBG mandated changes in minimum reserve requirements 
                   on funds attracted in national and foreign currencies. 
                   NBG raised the minimum reserve requirement on foreign 
                   currency funds from 20% to 25% depending on maturity, 
                   effective from 1 September 2018, and then further to 
                   30%, effective by the end of May 2019. In June 2018, 
                   in order to encourage the financial institutions to 
                   raise funding in the local currency, NBG decreased minimum 
                   reserve requirements on local currency funding from 
                   7% to 5%. 
                   Since the beginning of 2016, we have focused on increasing 
                   local currency lending. We actively work with IFIs to 
                   raise long-term Lari funding to increase our Lari-denominated 
                   loans to customers. Furthermore, in June 2017, we completed 
                   the inaugural local currency denominated international 
                   bond issuance in the amount of GEL500 million to support 
                   local currency lending. 
                   Applicable from the beginning of 2017, the NBG expanded 
                   the list of assets that banks are permitted to use as 
                   collateral for REPO transactions, which provides an 
                   additional funding source for our Lari-denominated loan 
                   book. 
                 -------------------------------------------------------------------- 
 REGIONAL INSTABILITY 
 PRINCIPAL RISK   The Georgian economy and our business may be adversely 
  / UNCERTAINTY    affected by regional tensions and instability. 
                   The Group's operations are primarily located in, and 
                   most of its revenue is sourced from, Georgia. The Georgian 
                   economy is dependent on economies of the region, in 
                   particular Russia, Turkey, Azerbaijan and Armenia who 
                   are key trading partners. 
                   There has been ongoing geopolitical tension, political 
                   and economic instability and military conflict in the 
                   region, which may have an adverse effect on our business 
                   and financial position. 
                 -------------------------------------------------------------------- 
 KEY DRIVERS      Russian troops continue to occupy the Abkhazia and the 
  / TRS         Tskhinvali/South Ossetia regions and tensions between 
                   Russia and Georgia persist. Russia is opposed to the 
                   eastward enlargement of the NATO, including the former 
                   Soviet republics such as Georgia. The introduction of 
                   a free trade regime between Georgia and the EU in September 
                   2014 and the visa-free travel in the EU granted to Georgian 
                   citizens in March 2017 may intensify tensions between 
                   the neighbours. The Government has taken certain steps 
                   towards improving relations with Russia, but, as of 
                   the date of this announcement these have not resulted 
                   in any formal or legal changes in the relationship between 
                   the two countries. 
                   In June 2018, as a result of early parliamentary and 
                   presidential elections, amendments to the Turkish constitution 
                   became effective. The amendments which grant the president 
                   wider powers are expected to transform Turkey's system 
                   of government away from a parliamentary system which 
                   could have a negative impact on political stability 
                   in Turkey. 
                   On 8 July 2019, Russia's ban on direct flights to Georgia, 
                   imposed earlier in June over anti-occupation protests 
                   in Tbilisi, came into effect. The sanctions are expected 
                   to affect the Georgian tourism sector, however, they 
                   also provide more incentives to further diversify its 
                   tourist base. 
                   There is an ongoing conflict between Azerbaijan and 
                   Armenia which impacts the region. 
                 -------------------------------------------------------------------- 
 MITIGATION       The Group actively monitors regional and local market 
                   conditions and risks related to political instability, 
                   and performs stress and scenario tests in order to assess 
                   our financial position. Responsive strategies and action 
                   plans are also developed. 
                   Recent Russian sanctions imposed on direct flights from 
                   Russia to Georgia are expected to weigh on Georgian 
                   economy, but unlike the 2006 Russian embargo, the country 
                   is better placed to deal with negative shocks. Georgia's 
                   key positives lie in its economic and trade diversification, 
                   the success of implemented reforms, its macroeconomic 
                   resilience, low public debt level and strong banking 
                   sector. These factors are expected to ensure economic 
                   resilience in the face of upcoming Russian sanctions 
                   on Georgia's tourism. Dealing with Russian sanctions 
                   is not a new challenge for Georgia. The 2006 Russian 
                   embargo forced Georgia to redirect its focus from Russian 
                   market, which expanded export destinations and improved 
                   the quality of Georgian products. This also deepened 
                   economic ties with the rest of the world, with the EU-Georgia 
                   free trade agreement signed in 2014, followed by free 
                   trade deals with China and other countries. Therefore, 
                   while lower global commodity prices and macroeconomic 
                   factors have affected Georgia's regional trading partners, 
                   leading to lower exports within the region, Georgia 
                   has benefited from increased exports earnings from non-traditional 
                   markets such as Switzerland, China, Egypt, Saudi Arabia, 
                   South Korea and Singapore. Hence, we believe that upcoming 
                   Russian sanctions will further intensify Georgia's economic 
                   diversification, use potential of new large markets 
                   - the EU and China, and enhance its institutions. Georgia's 
                   exposure (as defined by combination of four channels: 
                   exports, tourism, remittances and FDI) to Russia accounted 
                   for 9.3% of GDP in 2018. 
                   In April 2017, the IMF approved a new three-year US$285 
                   million economic programme, aimed at preserving macroeconomic 
                   and financial stability and addressing structural weaknesses 
                   in the Georgian economy to support a higher and inclusive 
                   growth. Implementation of the IMF programme is on track, 
                   with the authorities achieving all structural benchmarks 
                   set for specific periods. On 19 June 2019, the Executive 
                   Board of the IMF completed the Fourth Review of Georgia's 
                   economic reform programme. The completion of the review 
                   released Special Drawing Rights (SDR) 30 million (about 
                   US$ 41.4 million) to Georgia, bringing total disbursements 
                   under the arrangement to SDR 150 million (about US$ 
                   207.2 million). 
                   During the first half of 2019, Georgia delivered an 
                   estimated real GDP growth of 4.9%, whilst inflation 
                   was above NBG's 3.0% target level and reached 4.3% in 
                   June 2019, mostly explained by increased excises on 
                   tobacco. Tourist arrivals and remittances, significant 
                   sources of Dollar inflows in the country, continued 
                   to increase. The current account deficit halved in the 
                   first quarter of 2019 and, despite the expected loss 
                   of tourism revenues from reduced arrivals from Russia, 
                   the external balance is expected to improve on the back 
                   of anticipated adjustments in imports. 
                 -------------------------------------------------------------------- 
 LOAN PORTFOLIO QUALITY 
 PRINCIPAL RISK   The Group may not be able to maintain the quality of 
  / UNCERTAINTY    its loan portfolio. 
                   The quality of the Group's loan portfolio may deteriorate 
                   due to external factors beyond the Group's control such 
                   as negative developments in Georgia's economy or in 
                   the economies of its neighbouring countries, the unavailability 
                   or limited availability of credit information on certain 
                   of its customers, any failure of its risk management 
                   procedures or rapid expansion of its loan portfolio. 
                   The Group's Corporate and Investment Banking loan portfolio 
                   is concentrated and to the extent that such borrowers 
                   enter into further loan arrangements with the Group, 
                   this will increase the credit and general counterparty 
                   risk of the Group with respect to those counterparties 
                   and could result in deterioration of the Group's loan 
                   portfolio quality. 
                   Furthermore, the collateral values that the Group holds 
                   against the loans may decline, which may have an adverse 
                   effect on the business and financial position of the 
                   Group. 
                 -------------------------------------------------------------------- 
 KEY DRIVERS      During the first half of 2019, the Group's cost of credit 
  / TRS         risk ratio was 1.5%, as compared to 1.7% in the first 
                   six months of 2018. Expected credit loss/impairment 
                   charges and, in turn, the Group's cost of credit risk 
                   could increase if a single large borrower defaults or 
                   a material concentration of smaller borrowers default. 
                   As of 30 June 2019, 31 December 2018 and 2017, the Group's 
                   non-performing loans accounted for 3.2%, 3.3%, and 3.8% 
                   of gross loans, respectively. 
                   The Corporate and Investment Banking loan portfolio 
                   is concentrated, with the Group's top ten Corporate 
                   and Investment Banking borrowers accounting for 9.1% 
                   of the loan portfolio (gross of allowances for impairment) 
                   at 30 June 2019, as compared to 9.8% at 31 December 
                   2018 and 10.7% at 31 December 2017. 
                   At 30 June 2019, the Group held collateral against gross 
                   loans covering 85.8% of the total gross loans. The main 
                   forms of collateral taken in respect of Corporate and 
                   Investment Banking loans are liens over real estate, 
                   property plant and equipment, corporate guarantees, 
                   inventory, deposits and securities, transportation equipment 
                   and gold. The most common form of collateral accepted 
                   in Retail Banking loans is a lien over residential property. 
                   Downturns in the residential and commercial real estate 
                   markets or a general deterioration of economic conditions 
                   in the industries in which the Group's customers operate 
                   may result in illiquidity and a decline in the value 
                   of the collateral securing loans, including a decline 
                   to levels below the outstanding principal balance of 
                   those loans. In addition, declining or unstable prices 
                   of collateral in Georgia may make it difficult for the 
                   Group to accurately value collateral it holds. If the 
                   fair value of the collateral that the Group holds declines 
                   significantly in the future, it could be required to 
                   record additional provisions and could experience lower 
                   than expected recovery levels on collateralised loans 
                   past due more than 90 days. Further changes to laws 
                   or regulations may impair the value of such collateral. 
                 -------------------------------------------------------------------- 
 MITIGATION       The Group continuously monitors market conditions and 
                   reviews market changes, and also performs stress and 
                   scenario testing to test its position under adverse 
                   economic conditions. 
                   Our Credit Committees and Credit Risk department set 
                   counterparty limits by using a credit risk classification 
                   and scoring system for approving individual transactions. 
                   The credit quality review process is continuous and 
                   provides early identification of possible changes in 
                   the creditworthiness of customers, including regular 
                   collateral revaluations, potential losses and corrective 
                   actions needed to reduce risk, which may include obtaining 
                   additional collateral in accordance with underlying 
                   loan agreements. 
                   The Group continuously monitors the market value of 
                   the collateral it holds against the loans. When evaluating 
                   collateral, the Group discounts the market value of 
                   the assets to reflect the liquidation value of the collateral. 
                   In terms of Corporate and Investment Banking loan portfolio 
                   concentration, the Group aims to adhere strictly to 
                   the limits set by the NBG for client exposures, monitors 
                   the level of concentration in its loan portfolio and 
                   the financial performance of its largest borrowers and 
                   uses collateral to minimise loss given default on its 
                   largest exposures, reduces guarantee exposures in the 
                   riskier sector and maintains a well-diversified loan 
                   book sector concentration. 
                   In order to de-risk Georgian Banking sector and encourage 
                   responsible lending practice in the market, NBG introduced 
                   macroprudential policy instruments that modifies lending 
                   conditions to individuals. The payment-to-income ratio 
                   (PTI) and the loan-to-value ratio (LTV), effective since 
                   1 November 2018 for commercial banks and since 1 January 
                   2019 for all loan issuers, require the financial institutions 
                   to issue loans based on the rigorous assessment of clients' 
                   debt paying ability and aim at reducing high-risk products 
                   in the market. This initiative ensures the sustainability 
                   of the financial sector in the event of real estate 
                   price reductions and further reduces the risk of the 
                   loan portfolio quality. 
                 -------------------------------------------------------------------- 
 REGULATORY RISK 
 PRINCIPAL RISK   The Group operates in an evolving regulatory environment 
  / UNCERTAINTY    and is subject to regulatory oversight of the National 
                   Bank of Georgia, supervising the banking sector and 
                   the securities market in Georgia. 
                   The financial sector in Georgia is highly regulated. 
                   The regulatory environment continues to evolve. We, 
                   however, cannot predict what additional regulatory changes 
                   will be introduced in the future or the impact they 
                   may have on our operations. 
                 -------------------------------------------------------------------- 
 KEY DRIVERS      Our banking operations must comply with capital adequacy 
  / TRS         and other regulatory ratios set by our regulator, the 
                   NBG, including reserve requirements and mandatory financial 
                   ratios. Our ability to comply with existing or amended 
                   NBG requirements may be affected by a number of factors, 
                   including those outside of our control, such as an increase 
                   in the Bank's risk-weighted assets, our ability to raise 
                   capital, losses resulting from deterioration in our 
                   asset quality and/or a reduction in income levels and/or 
                   an increase in expenses, decline in the value of the 
                   Bank's securities portfolio, as well as weakening of 
                   global and Georgian economies. 
                 -------------------------------------------------------------------- 
 MITIGATION       Continued investment in our people and processes is 
                   enabling us to meet our current regulatory requirements 
                   and means that we are well placed to respond to any 
                   future changes in regulation. 
                   In line with our integrated control framework, we carefully 
                   evaluate the impact of legislative and regulatory changes 
                   as part of our formal risk identification and assessment 
                   processes and, to the extent possible, proactively participate 
                   in the drafting of relevant legislation. As part of 
                   this process, we engage in constructive dialogue with 
                   regulatory bodies, where possible, and seek external 
                   advice on potential changes to legislation. We then 
                   develop appropriate policies, procedures and controls, 
                   as required, to fulfil our compliance obligations. 
                   Our compliance framework, at all levels, is subject 
                   to regular review by the Bank's Internal Audit and external 
                   assurance service providers. 
                 -------------------------------------------------------------------- 
 LIQUIDITY RISK 
 PRINCIPAL RISK   The Group is exposed to liquidity risk when the maturities 
  / UNCERTAINTY    of its assets and liabilities do not coincide. 
                   Although the Group expects to have sufficient funding 
                   over the next 18 months and beyond to execute its strategy 
                   and to have sufficient liquidity over the next 18 months 
                   and beyond, liquidity risk is nevertheless inherent 
                   in banking operations and may be heightened by a number 
                   of factors, including an over-reliance on, or an inability 
                   to access, a particular source of funding, changes in 
                   credit ratings or market-wide phenomena, such as financial 
                   market instability. 
                   Credit markets worldwide have in recent years experienced, 
                   and may continue to experience, a reduction in liquidity 
                   and long-term funding as a result of global economic 
                   and financial factors. The availability of credit in 
                   emerging markets, in particular, is significantly influenced 
                   by the level of investor confidence and, as such, any 
                   factors that affect investor confidence (for example, 
                   a downgrade in credit ratings of the Bank, Georgia, 
                   or state interventions or debt restructurings in a relevant 
                   industry) could affect the price or availability of 
                   funding for the Group companies, operating in any of 
                   these markets. 
                 -------------------------------------------------------------------- 
 KEY DRIVERS      The Group's current liquidity may be affected by unfavourable 
  / TRS         financial market conditions. If assets held by the Group 
                   in order to provide liquidity become illiquid or their 
                   value drops substantially, the Group may be required, 
                   or may choose, to rely on other sources of funding to 
                   finance its operations and future growth. Only a limited 
                   amount of funding, however, is available on the Georgian 
                   inter-bank market, and recourse to other funding sources 
                   may pose additional risks, including the possibility 
                   that other funding sources may be more expensive and 
                   less flexible. In addition, the Group's ability to access 
                   such external funding sources depends on the level of 
                   credit lines available to it, and this, in turn, is 
                   dependent on the Group's financial and credit condition, 
                   as well as general market liquidity. 
                   In terms of current and short-term liquidity, the Group 
                   is exposed to the risk of unexpected, rapid withdrawal 
                   of deposits by its customers in large volumes. Circumstances 
                   in which customers are more likely to withdraw deposits 
                   in large volumes rapidly include, among others, a severe 
                   economic downturn, a loss in consumer confidence, an 
                   erosion of trust in financial institutions or a period 
                   of social, economic or political instability. If a substantial 
                   portion of customers rapidly or unexpectedly withdraw 
                   their demand or term deposits or do not roll over their 
                   term deposits upon maturity, this could have a material 
                   adverse effect on the Group's business, financial condition 
                   and results of operations. 
                 -------------------------------------------------------------------- 
 MITIGATION       The Group manages its liquidity risk through the liquidity 
                   risk management framework, which models the ability 
                   of the Group to meet its payment obligations under both 
                   normal conditions and crisis. 
                   The Bank has developed a model based on the Basel III 
                   liquidity guidelines. It maintains a solid buffer on 
                   top of Liquidity Coverage Ratio (LCR) requirement of 
                   100% mandated by NBG since September 2017. A strong 
                   LCR enhances the Group's short-term resilience. Moreover, 
                   the Bank holds a comfortable buffer on top of Net Stable 
                   Funding Ratio (NSFR) requirement of 100%, which will 
                   come into effect on 1 September 2019. A solid buffer 
                   over NSFR provides stable funding sources over a longer 
                   time span. This approach is designed to ensure that 
                   the funding framework is sufficiently flexible to secure 
                   liquidity under a wide range of market conditions. 
                   Among other things, the Group maintains a diverse funding 
                   base comprising of short-term sources of funding (including 
                   Retail Banking and Corporate and Investment Banking 
                   customer deposits, inter-bank borrowings and borrowings 
                   from the NBG) and longer-term sources of funding (including 
                   term Retail Banking and Corporate and Investment Banking 
                   deposits, borrowing from international credit institutions, 
                   sales and purchases of securities and long-term debt 
                   securities). 
                   Client deposits and notes are one of the most important 
                   sources of funding for the Group. As of 30 June 2019, 
                   31 December 2018 and 31 December 2017, 89.4%, 90.8%, 
                   and 91.4%, respectively, of client deposits and notes 
                   had contractual maturities of one year or less, of which 
                   54.8%, 55.1%, and 56.5%, respectively, were payable 
                   on demand. However, as of the same dates, the ratio 
                   of net loans to client deposits and notes was 119.5%, 
                   115.5%, and 109.4%, respectively, and the NBG liquidity 
                   coverage ratios were 114.3%, 120.1%, and 112.4%, respectively. 
                 -------------------------------------------------------------------- 
 OPERATIONAL RISK, CYBER-SECURITY, INFORMATION SYSTEMS AND FINANCIAL 
  CRIME 
 PRINCIPAL RISK   We are at risk of experiencing cyber-security breaches, 
  / UNCERTAINTY    unauthorised access to our systems and financial crime, 
                   or failures in our banking activity processes or systems 
                   or human error, which could disrupt our customer services, 
                   result in financial loss, have legal or regulatory implications 
                   and/or affect our reputation. 
                   We are highly dependent on the proper functioning of 
                   our risk management, internal controls and systems, 
                   and internal processes including those related to data 
                   protection, IT and information security in order to 
                   manage these threats. 
                   We may be adversely affected if we fail to mitigate 
                   the risk of our products and services being used to 
                   facilitate a financial crime. 
                 -------------------------------------------------------------------- 
 KEY DRIVERS      Cyber-security threats have continued to increase over 
  / TRS         the past few years and we saw a number of major organisations 
                   subject to cyber-attacks, although fortunately, our 
                   operations were not materially affected. The external 
                   threat profile is continuously changing and we expect 
                   threats to continue to increase. 
                   Over the past few years, as our operations have expanded, 
                   we have seen an increase in electronic crimes, including 
                   fraud, although losses have not been significant. Money 
                   laundering (ML) and Terrorism financing (FT) risks, 
                   which the Bank has measures in place to guard against, 
                   continue to evolve globally. The Bank continues to face 
                   stringent regulatory and supervisory requirements related 
                   to the fight against ML/TF. Failure to comply with these 
                   requirements may lead to enforcement action by the regulator, 
                   which can result in a pecuniary penalty and negatively 
                   impact the Group's reputation. 
                 -------------------------------------------------------------------- 
 MITIGATION       We have an integrated control framework encompassing 
                   operational risk management, IT systems, corporate and 
                   other data security, each of which is managed by a separate 
                   department. 
                   We have an anti-money laundering (AML)/counter-terrorist 
                   financing (CTF) framework which includes a risk-based 
                   approach (RBA) towards the ML/FT risks, know your customer 
                   (KYC), transaction monitoring, sanctions and transaction 
                   screening, transaction reporting, correspondent relationship 
                   assessment and monitoring, and training programmes. 
                   The framework is designed to comply with the local legislation, 
                   international standards (Financial Action Task Force 
                   (FATF) recommendations), and international financial 
                   sanctions programmes. We continue to enhance our AML 
                   compliance function by strengthening the Bank's AML 
                   compliance framework, policies and procedures (including 
                   ML/FT risk management policy, KYC and Customer Acceptance 
                   Policy). We have invested significant resources to further 
                   improve our ML/FT risk management capabilities (including 
                   transaction monitoring solutions). We have a regulatory 
                   change management process in place ensuring timely compliance 
                   with the new regulations. 
                   We identify and assess operational risk categories within 
                   our risk management framework, identify critical risk 
                   areas or groups of operations with an increased risk 
                   level and develop policies and security procedures to 
                   mitigate these risks. 
                   We have security controls in place including policies, 
                   procedures and security technologies. We also regularly 
                   carry out IT and information security checks internally 
                   and with the assistance of external consultants. We 
                   have sophisticated anti-virus protection and firewalls 
                   to help protect against potentially malicious software. 
                   We have increased our internal and external penetration 
                   testing and have back-up disaster recovery and business 
                   continuity plans in place across the Bank. We improved 
                   access control and password protections through the 
                   implementation of "Privileged Access Monitoring" for 
                   employees with the highest privileged access to confidential 
                   and customer data. We have implemented secure email 
                   gateway solution which decreased the number of malware 
                   attachments by 95%. We have also implemented a Security 
                   Information and Event Management (SIEM) solution which 
                   now gives us a complete view of the changes and events 
                   happening in our infrastructure. Oracle database firewall 
                   solution has been optimised. Oracle Audit Vault and 
                   Database Firewall (AVDF) includes an enterprise quality 
                   audit data warehouse, reporting and analysis tools, 
                   alert framework, audit dashboard, and sophisticated 
                   next-generation database firewall. We have created policies 
                   with the help of Cloud Data Loss Prevention (DLP) and 
                   now we monitor and restrict any critical data upload 
                   on our internal communication platform including pictures, 
                   office files, account numbers, etc. We have established 
                   a cyber-security framework, information security risk 
                   management framework and information security-related 
                   policies. We have dedicated a highly qualified team 
                   to security operations unit. We continue to invest in 
                   technology to enhance our ability to prevent, detect 
                   and respond to increasing and evolving threats. 
                   The Bank's Internal Audit function provides assurance 
                   on the adequacy and effectiveness of our risk management, 
                   internal controls and systems in place. These types 
                   of operational risk are on the Audit Committee's regular 
                   agenda and are also frequently discussed at the Board 
                   level. 
                 -------------------------------------------------------------------- 
 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

We, the Directors, confirm that to the best of our knowledge:

-- The interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting" as adopted by the European Union, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

-- This Results Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

-- This Results Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related parties' transactions and changes therein)

After considering the Group's financial and cash flow forecasts and all other available information and possible outcomes or responses to events, the Board is satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore, the Directors considered it appropriate to adopt the going concern basis in preparing this Results Report.

The Directors of the Group are as follows:

Neil Janin

Archil Gachechiladze

Hanna Loikkanen

Alasdair Breach

Tamaz Georgadze

Jonathan Muir

Cecil Quillen

Andreas Wolf

Véronique McCarroll

By order of the Board

Neil Janin Archil Gachechiladze

Chairman Chief Executive Officer

13 August 2019

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

CONTENTS

INDEPENT REVIEW REPORT

Interim Condensed Consolidated Statement of Financial Position............................................................................................... 35

Interim Condensed Consolidated Income Statement..................................................................................................................... 36

Interim Condensed Consolidated Statement of Comprehensive Income..................................................................................... 38

Interim Condensed Consolidated Statement of Changes in Equity ............................................................................................. 39

Interim Condensed Consolidated Statement of Cash Flows ........................................................................................................ 40

SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   1.       Principal Activities 
   2.       Basis of Preparation 
   3.       Summary of Significant Accounting Policies 
   4.       Discontinued Operations 
   5.       Restatement and Reclassification 
   6.       Segment Information 
   7.       Cash and Cash Equivalents 
   8.       Amounts Due from Credit Institutions 
   9.       Investment Securities 
   10.     Loans to Customers and Finance Lease Receivables 
   11.     Client Deposits and Notes 
   12.     Amounts Owed to Credit Institutions 
   13.     Debt Securities Issued 
   14.     Commitments and Contingencies 
   15.     Equity 
   16.     Net Interest Income. 
   17.     Net Fee and Commission Income 
   18.     Net Non-recurring Items 
   19.     Income Tax Expense 
   20.     Fair Value Measurements 
   21.     Maturity Analysis of Financial Assets and Liabilities 
   22.     Related Party Disclosures 
   23.     Capital Adequacy 
   24.     Events after the Reporting Period 

INDEPENT REVIEW REPORT TO BANK OF GEORGIA GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report as at and for the six months ended 30 June 2019 which comprises Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Income Statement, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Statement of Cash Flows and related notes 1 to 24. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report as at and for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

13 August 2019

Notes:

1. The maintenance and integrity of the Bank of Georgia Group PLC's web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2019

(Thousands of Georgian Lari)

 
                                                         As at 
                                                     -------------  ------------ 
                                              Notes   30 June 2019   31 December 
                                                       (unaudited)       2018 
                                             ------  -------------  ------------ 
 Assets 
 Cash and cash equivalents                      7          936,106     1,215,799 
 Amounts due from credit institutions           8        1,704,701     1,305,216 
 Investment securities                          9        1,896,738     2,019,017 
 Loans to customers and finance 
  lease receivables                            10       10,579,710     9,397,747 
 Accounts receivable and other 
  loans                                                      3,688         2,849 
 Prepayments                                                36,026        44,294 
 Inventories                                                11,748        13,292 
 Right of use assets                                       105,874             - 
 Investment properties                                     178,764       151,446 
 Property and equipment                                    358,921       344,059 
 Goodwill                                                   33,351        33,351 
 Intangible assets                                          93,515        83,366 
 Income tax assets                                           5,080        19,451 
 Other assets                                              149,233       126,008 
 Assets held for sale                                       40,544        42,408 
                                                     -------------  ------------ 
 Total assets                                           16,133,999    14,798,303 
                                                     =============  ============ 
 Liabilities 
 Client deposits and notes                     11        8,855,616     8,133,853 
 Amounts owed to credit institutions           12        2,960,519     2,994,879 
 Debt securities issued                        13        2,137,239     1,730,414 
 Lease liability                                           100,172             - 
 Accruals and deferred income                               34,748        47,063 
 Income tax liabilities                                     30,361        28,855 
 Other liabilities                                          97,125        64,966 
                                                     -------------  ------------ 
 Total liabilities                                      14,215,780    13,000,030 
                                                     -------------  ------------ 
 
 Equity                                        15 
 Share capital                                               1,618         1,618 
 Additional paid-in capital                                493,890       480,555 
 Treasury shares                                              (49)          (51) 
 Other reserves                                             46,744        30,515 
 Retained earnings                                       1,367,632     1,277,732 
                                                     -------------  ------------ 
 Total equity attributable to shareholders 
  of the Group                                           1,909,835     1,790,369 
 Non-controlling interests                                   8,384         7,904 
                                                     -------------  ------------ 
 Total equity                                            1,918,219     1,798,273 
                                                     -------------  ------------ 
 Total liabilities and equity                           16,133,999    14,798,303 
                                                     =============  ============ 
 

The financial statements on pages 35 to 69 were approved by the Board of Directors on 13 August 2019 and signed on its behalf by:

Archil Gachechiladze

Chief Executive Officer

13 August 2019

Bank of Georgia Group PLC

Registered No. 10917019

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2019

(Thousands of Georgian Lari)

 
                                                             For the six months 
                                                                    ended 
                                                  --------------------------------------- 
                                           Notes        30 June             30 June 
                                                    2019 (unaudited)    2018 (unaudited)* 
                                          ------  ------------------  ------------------- 
 
   Interest income calculated using 
    EIR method                                               665,752              629,948 
   Other interest income                                      11,207                8,823 
 Interest income                                             676,959              638,771 
 
   Interest expense                                        (308,569)            (267,217) 
   Deposit insurance fees                                    (3,827)              (2,574) 
 Net interest income                        16               364,563              368,980 
                                                  ------------------  ------------------- 
 
   Fee and commission income                                 130,556              106,005 
   Fee and commission expense                               (45,109)             (34,168) 
                                                  ------------------  ------------------- 
 Net fee and commission income              17                85,447               71,837 
                                                  ------------------  ------------------- 
 
 Net foreign currency gain                                    66,724               38,577 
 Net other (expense) income                                    (691)                8,898 
 
 Operating income                                            516,043              488,292 
                                                  ------------------  ------------------- 
 
   Salaries and other employee benefits                    (122,811)            (102,323) 
   Administrative expenses                                  (44,774)             (51,885) 
   Depreciation and amortisation                            (32,983)             (22,914) 
   Other operating expenses                                  (2,329)              (1,736) 
                                                  ------------------  ------------------- 
 Operating expenses                                        (202,897)            (178,858) 
                                                  ------------------  ------------------- 
 
 Profit from associates                                          442                  695 
 
 Operating income before cost of 
  risk                                                       313,588              310,129 
                                                  ------------------  ------------------- 
 

* Certain amounts do not correspond to the 2018 interim condensed consolidated financial statements as they reflect the adjustments made for the adoption of new standards as described in Note 5.

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (CONTINUED)

For the year ended 30 June 2019

(Thousands of Georgian Lari)

 
                                                                  For the six months 
                                                                         ended 
                                                       --------------------------------------- 
                                                Notes        30 June             30 June 
                                                         2019 (unaudited)    2018 (unaudited)* 
                                               ------  ------------------  ------------------- 
 
 Operating income before cost of 
  risk                                                            313,588              310,129 
                                                       ------------------  ------------------- 
   Expected credit loss /impairment 
    charge on 
    loans to customers                           10              (72,553)             (70,211) 
   Expected credit loss /impairment 
    charge on 
    finance lease receivables                                     (1,003)                (253) 
   Other expected credit (loss) / 
    recovery                                                      (1,014)                3,644 
   Impairment charge on other assets 
    and provisions                                                (3,559)              (4,520) 
                                                       ------------------  ------------------- 
 Cost of risk                                                    (78,129)             (71,340) 
                                                       ------------------  ------------------- 
 
 Net operating income before non-recurring 
  items                                                           235,459              238,789 
                                                       ------------------  ------------------- 
 
   Net non-recurring items                       18               (8,097)             (46,823) 
                                                       ------------------  ------------------- 
 
 Profit before income tax expense 
  from continuing 
  operations                                                      227,362              191,966 
 
   Income tax expense                            19              (18,246)             (37,001) 
 
 Profit from continuing operations                                209,116              154,965 
                                                       ==================  =================== 
 
   Profit from discontinued operations            4                     -              107,899 
 
 Profit for the period                                            209,116              262,864 
                                                       ==================  =================== 
 
 Total profit attributable to: 
      - shareholders of the Group                                 208,154              244,106 
      - non-controlling interests                                     962               18,758 
                                                       ------------------  ------------------- 
                                                                  209,116              262,864 
                                                       ==================  =================== 
 Profit from continuing operations 
  attributable to: 
      - shareholders of the Group                                 208,154              154,422 
      - non-controlling interests                                     962                  543 
                                                       ------------------  ------------------- 
                                                                  209,116              154,965 
                                                       ==================  =================== 
 Profit from discontinued operations 
  attributable to: 
      - shareholders of the Group                                       -               89,684 
      - non-controlling interests                                       -               18,215 
                                                                        -              107,899 
                                                       ==================  =================== 
 
 Basic earnings per share:                       15                4.3505               5.9469 
      - earnings per share from continuing 
       operations                                                  4.3505               3.7620 
      - earnings per share from discontinued 
       operations                                                       -               2.1849 
 
 Diluted earnings per share:                     15                4.3350               5.8783 
      - earnings per share from continuing 
       operations                                                  4.3350               3.7187 
      - earnings per share from discontinued 
       operations                                                       -               2.1596 
 

* Certain amounts do not correspond to the 2018 interim condensed consolidated financial statements as they reflect the adjustments made for the adoption of new standards as described in Note 5.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2019

(Thousands of Georgian Lari)

 
                                                                              For the six months 
                                                                                     ended 
                                                                   --------------------------------------- 
                                                            Notes        30 June             30 June 
                                                                     2019 (unaudited)    2018 (unaudited)* 
                                                           ------  ------------------  ------------------- 
 
 Profit for the period                                                        209,116              262,864 
                                                                   ------------------  ------------------- 
 
 Other comprehensive (loss) income from continuing 
  operations 
 Other comprehensive income (loss) from continuing 
  operations to be reclassified to profit or 
  loss in subsequent periods: 
    - Net change in fair value on investments 
     in debt instruments measured at FVOCI                                     12,961              (5,280) 
    - Realised (gain) / loss on financial assets 
     measured at FVOCI                                                        (6,361)                  357 
    -Change in allowance for expected credit losses 
     on investments in debt instruments measured 
     at FVOCI reclassified to the consolidated 
     income statement                                                           1,727                (702) 
    - Gain (loss) from currency translation differences                        13,200              (5,923) 
      Income tax impact                                                             -                (696) 
                                                                   ------------------  ------------------- 
 Net other comprehensive income (loss) from 
  continuing operations to be reclassified to 
  profit or loss in subsequent periods                                         21,527             (12,244) 
 
 Other comprehensive income from continuing 
  operations not to be reclassified to profit 
  or loss in subsequent periods: 
    - Revaluation of property and equipment reclassified 
     to investment property                                                         -                3,450 
    - Net gain on investments in equity instruments                               185                    - 
     designated at FVOCI 
                                                                   ------------------  ------------------- 
 Net other comprehensive income from continuing 
  operations not to be reclassified to profit 
  or loss in subsequent periods                                                   185                3,450 
 
      Other comprehensive loss for the period from 
       discontinued operations to be reclassified 
       to profit or loss in subsequent periods                4                     -             (10,881) 
 
 Other comprehensive income (loss) for the 
  period, net of tax                                                           21,712             (19,675) 
                                                                   ------------------  ------------------- 
 
      Total comprehensive income for the period 
       from continuing operations                                             230,828              146,171 
      Total comprehensive income for the period 
       from discontinued operations                                                 -               97,018 
 Total comprehensive income for the period                                    230,828              243,189 
                                                                   ==================  =================== 
 
 Total comprehensive income attributable to: 
      - shareholders of the Group                                             229,727              224,139 
      - non-controlling interests                                               1,101               19,050 
                                                                   ------------------  ------------------- 
                                                                              230,828              243,189 
                                                                   ==================  =================== 
 
 Total comprehensive income from continuing 
  operations attributable to: 
      - shareholders of the Group                                             229,727              145,336 
      - non-controlling interests                                               1,101                  835 
                                                                   ------------------  ------------------- 
                                                                              230,828              146,171 
                                                                   ==================  =================== 
 
 Total comprehensive income from discontinued 
  operations attributable to: 
      - shareholders of the Group                                                   -               78,803 
      - non-controlling interests                                                   -               18,215 
                                                                                    -               97,018 
                                                                   ==================  =================== 
 

* Certain amounts do not correspond to the 2018 interim condensed consolidated financial statements as they reflect the adjustments made for the adoption of new standards as described in Note 5.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2019

(Thousands of Georgian Lari)

 
                                             Attributable to shareholders of the 
                                                            Group 
                   --------------------------------------------------------------------------------------  ----------------  ------------ 
                                                                     Reserves 
                                                                        of 
                                                                     disposal 
                                                                      group 
                                  Additional                           held 
                       Share        paid-in    Treasury    Other       for       Retained                   Non-controlling      Total 
                      capital       capital     shares    reserves     sale      earnings        Total         interests        equity 
                   ------------  -----------  ---------  ---------  ---------  ------------  ------------  ----------------  ------------ 
 31 December 2017         1,151      106,086       (66)    122,082     10,934     2,180,415     2,420,602           311,768     2,732,370 
                   ============  ===========  =========  =========  =========  ============  ============  ================  ============ 
 Adoption of IFRS 
  9 (Note 3)                  -            -          -      3,267          -      (18,237)      (14,970)           (2,724)      (17,694) 
 1 January 2018           1,151      106,086       (66)    125,349     10,934     2,162,178     2,405,632           309,044     2,714,676 
                   ============  ===========  =========  =========  =========  ============  ============  ================  ============ 
 Profit for the 
  six months 
  ended 
  30 June 2018 
  (unaudited)                 -            -          -          -          -       244,106       244,106            18,758       262,864 
 Other 
  comprehensive 
  income (loss) 
  for the six 
  months 
  ended 30 June 
  2018 
  (unaudited)                 -            -          -   (17,575)          -       (2,392)      (19,967)               292      (19,675) 
 Total 
  comprehensive 
  income (loss) 
  for the six 
  months ended 
  30 June 2018 
  (unaudited)                 -            -          -   (17,575)          -       241,714       224,139            19,050       243,189 
 Depreciation 
  of property and 
  equipment 
  revaluation 
  reserve, net 
  of tax                      -            -          -      (333)          -           333             -                 -             - 
 Increase in 
  equity 
  arising from 
  share-based 
  payments                    -       70,681         38          -          -             -        70,719             1,014        71,733 
 Dividends to 
  shareholders 
  of the Group 
  (Note 15)                   -            -          -          -          -       (5,412)       (5,412)                 -       (5,412) 
 Dilution of 
  interests 
  in subsidiaries             -            -          -          -          -             -             -             1,876         1,876 
 Acquisition of 
  non-controlling 
  interests in 
  existing 
  subsidiaries                -            -          -    (5,020)          -             -       (5,020)           (8,044)      (13,064) 
 Purchase of 
  treasury 
  shares                      -     (93,113)       (13)          -          -             -      (93,126)                 -      (93,126) 
 Issue of share 
  capital (Note 
  15)                 4,375,378            -          -          -          -             -     4,375,378                 -     4,375,378 
 Capital 
  reduction 
  (Note 15)         (4,375,061)    (196,438)          -          -          -       196,293   (4,375,206)                 -   (4,375,206) 
 Distribution 
  of Investment 
  Business to 
  shareholders 
  of the Group*             322      575,914          -   (76,153)   (10,934)   (1,425,742)     (936,593)         (315,786)   (1,252,379) 
 30 June 2018 
  (unaudited)             1,790      463,130       (41)     26,268          -     1,169,364     1,660,511             7,154     1,667,665 
                   ============  ===========  =========  =========  =========  ============  ============  ================  ============ 
 
 31 December 2018         1,618      480,555       (51)     30,515          -     1,277,732     1,790,369             7,904     1,798,273 
                   ============  ===========  =========  =========  =========  ============  ============  ================  ============ 
 Profit for the 
  six months 
  ended 
  30 June 2019 
  (unaudited)                 -            -          -          -          -       208,154       208,154               962       209,116 
 Other 
  comprehensive 
  income for the 
  six months 
  ended 
  30 June 2019 
  (unaudited)                 -            -          -     16,229          -         5,344        21,573               139        21,712 
 Total 
  comprehensive 
  income for the 
  six months 
  ended 
  30 June 2019 
  (unaudited)                 -            -          -     16,229          -       213,498       229,727             1,101       230,828 
 Increase in 
  equity 
  arising from 
  share-based 
  payments                    -       37,893         13          -          -             -        37,906                 -        37,906 
 Purchase of 
  treasury 
  shares                      -     (24,558)       (11)          -          -             -      (24,569)                 -      (24,569) 
 Dividends to 
  shareholders 
  of the Group 
  (Note 15)                   -            -          -          -          -     (123,598)     (123,598)                 -     (123,598) 
 Dividends of 
  subsidiaries 
  to 
  non-controlling 
  shareholders                -            -          -          -          -             -             -             (621)         (621) 
 30 June 2019 
  (unaudited)             1,618      493,890       (49)     46,744          -     1,367,632     1,909,835             8,384     1,918,219 
                   ============  ===========  =========  =========  =========  ============  ============  ================  ============ 
 

* Increase in additional paid in capital from distribution of Investment Business to shareholders of the Group includes Demerger costs in amount of GEL 23,170.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the year ended 30 June 2019

(Thousands of Georgian Lari)

 
                                                                     For the six months 
                                                                            ended 
                                                           -------------------------------------- 
                                                  Notes          30 June             30 June 
                                                             2019 (unaudited)    2018 (unaudited) 
                                                 -------   ------------------  ------------------ 
 
 Cash flows from operating activities 
   Interest received                                                  655,576             620,479 
   Interest paid                                                    (292,660)           (262,639) 
   Fees and commissions received                                      108,728             114,976 
   Fees and commissions paid                                         (45,109)            (33,839) 
   Net realised gain from foreign currencies                           44,354              38,895 
   Recoveries of loans to customers previously 
    written off                                                         1,727              21,793 
   Other income received (expense paid)                                 8,443            (18,883) 
   Salaries and other employee benefits 
    paid                                                             (89,147)            (90,967) 
   General and administrative and operating 
    expenses paid                                                    (29,435)            (64,197) 
 Cash flows from operating activities 
  from continuing operations before 
  changes in operating assets and liabilities                         362,477             325,618 
 
   Net (increase) decrease in operating 
    assets 
   Amounts due from credit institutions                             (278,765)             156,427 
   Loans to customers and finance lease 
    receivables                                                     (779,163)           (820,920) 
   Prepayments and other assets                                       (9,271)            (21,685) 
 
   Net increase (decrease) in operating 
    liabilities 
   Amounts due to credit institutions                               (124,375)             315,825 
   Debt securities issued                                             306,397            (77,419) 
   Client deposits and notes                                          273,561             379,874 
   Lease liability                                                    (1,093)                   - 
   Other liabilities                                                 (13,322)             (9,432) 
                                                           ------------------  ------------------ 
 Net cash flows (used in) from operating 
  activities from continuing operations 
  before income tax                                                 (263,554)             248,288 
   Income tax paid                                                    (2,369)            (32,777) 
                                                           ------------------  ------------------ 
 Net cash flows (used in) from operating 
  activities from continuing operations                             (265,923)             215,511 
                                                           ------------------  ------------------ 
 
   Net cash flows from operating activities 
    of 
    discontinued operations                                                 -             260,166 
                                                           ------------------  ------------------ 
 Net cash flows (used in) from operating 
  activities                                                        (265,923)             475,677 
                                                           ------------------  ------------------ 
 
 Cash flows from (used in) investing 
  activities 
   Net sales (purchases) of investment 
    securities                                                        131,599           (115,328) 
   Proceeds from sale of investment properties 
    and 
    assets held for sale                                               19,813              34,999 
   Proceeds from sale of property and 
    equipment and 
    intangible assets                                                   2,913               3,292 
   Purchase of property and equipment 
    and intangible assets                                            (50,543)            (28,840) 
   Dividends received                                                     210                   - 
                                                           ------------------  ------------------ 
 Net cash flows from (used in) investing 
  activities from continuing operations                               103,992           (105,877) 
                                                           ------------------  ------------------ 
 
   Net cash flows used in investing activities 
    of 
    discontinued operations                                                 -           (283,621) 
                                                           ------------------  ------------------ 
 Net cash flows from (used in) investing 
  activities                                                          103,992           (389,498) 
                                                           ------------------  ------------------ 
 
 
                                                               For the six months 
                                                                      ended 
                                                     -------------------------------------- 
                                              Notes        30 June             30 June 
                                                       2019 (unaudited)    2018 (unaudited) 
                                             ------  ------------------  ------------------ 
 
 Cash flows used in financing activities 
   Dividends paid                                             (123,765)             (5,423) 
   Purchase of treasury shares                                 (24,569)            (76,719) 
   Cash disposed as a result of Investment 
    Business 
    distribution                                                      -            (78,180) 
 Net cash used in financing activities 
  from 
  continuing operations                                       (148,334)           (160,322) 
                                                     ------------------  ------------------ 
 
 Net cash from financing activities 
  of 
  discontinued operations                                             -               2,334 
                                                     ------------------  ------------------ 
 Net cash used in financing activities                        (148,334)           (157,988) 
                                                     ------------------  ------------------ 
 
   Effect of exchange rates changes on 
    cash and cash equivalents                                    30,509              13,789 
   Effect of expected credit losses on                               63                   - 
    cash and cash equivalents 
 
 Net decrease in cash and cash equivalents                    (279,693)            (58,020) 
                                                     ------------------  ------------------ 
 
 Cash and cash equivalents, beginning 
  of the period                                 7             1,215,799           1,582,435 
 Cash and cash equivalents of disposal 
  group held for sale, 
  beginning of the period                                             -              22,448 
 Cash and cash equivalents, end of 
  the period                                    7               936,106           1,546,863 
 

Bank of Georgia Group PLC and Subsidiaries

Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements

(Thousands of Georgian Lari)

   1.     Principal Activities 

Bank of Georgia Group PLC ("BOGG") is a public limited liability company incorporated in England and Wales with registered number 10917019. BOGG holds 99.55% of the share capital of JSC Bank of Georgia (the "Bank") as at 30 June 2019, representing the Bank's ultimate parent company. Together with the Bank and other subsidiaries, the Group makes up a group of companies (the "Group") and provides banking, leasing, brokerage and investment management services to corporate and individual customers. The shares of BOGG ("BOGG Shares") are admitted to the premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities, effective 21 May 2018. The Bank is the Group's main operating unit and accounts for most of the Group's activities.

JSC Bank of Georgia was established on 21 October 1994 as a joint stock company ("JSC") under the laws of Georgia. The Bank operates under a general banking license issued by the National Bank of Georgia ("NBG"; the Central Bank of Georgia) on 15 December 1994

The Bank accepts deposits from the public and extends credit, transfers payments in Georgia and internationally and exchanges currencies. Its main office is in Tbilisi, Georgia. At 30 June 2019, the Bank has 276 operating outlets in all major cities of Georgia (31 December 2018: 276). The Bank's registered legal address is 29a Gagarini Street, Tbilisi 0160, Georgia.

On 3 July 2017 BGEO Group PLC, ("BGEO"), former ultimate holding company of the Group, announced its intention to demerge BGEO Group PLC into a London-listed banking business (the "Banking Business"), Bank of Georgia Group PLC, and a London-listed investment business (the "Investment Business"), Georgia Capital PLC.

As part of the Demerger, Bank of Georgia Group PLC was incorporated and on 18 May 2018 issued 39,384,712 ordinary shares in exchange for the entire issued capital of BGEO Group PLC and became the parent company of BGEO. On 29 May 2018 the demerger ("Demerger") of the Group's investment business ("Investment Business") to Georgia Capital PLC ("GCAP") become effective. As a result of the Demerger, the Group distributed the investments in the Investment Business with a fair value of GEL 1,441,552 thousands to the shareholders of the Company. In addition, BOGG has issued and allotted a further 9,784,716 BOGG Shares (the "Consideration Shares", equivalent to 19.9% of BOGG's issued ordinary share capital) to GCAP in consideration for the transfer to BOGG by GCAP of GCAP's stake in the JSC Bank of Georgia and JSC BG Financial. As set out in the BOGG prospectus dated 26 March 2018, for as long as GCAP's percentage holding in BOGG is greater than 9.9%, GCAP will exercise its voting rights at BOGG general meetings in accordance with the votes cast by all other BOGG shareholders on BOGG votes at general meetings.

BOGG's registered legal address is 84 Brook Street, London, W1K 5EH, England.

As at 30 June 2019 and 31 December 2018, the following shareholders owned more than 3% of the total outstanding shares of BOGG. Other shareholders individually owned less than 3% of the outstanding shares.

 
                                                As at 
                                  -------------------------------- 
                                        30 June        31 December 
 Shareholder                        2019 (unaudited)       2018 
                                  ------------------  ------------ 
 JSC Georgia Capital                          19.90%        19.90% 
 Harding Loevner Management LP                 4.93%         4.66% 
 JP Morgan Asset Management                    3.01%         3.01% 
 Others                                       72.16%        72.43% 
 Total*                                      100.00%       100.00% 
                                  ==================  ============ 
 

* For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares, which includes shares held in the trust for the share-based compensation purposes of the Group.

   2.     Basis of Preparation 

General

The financial information set out in these interim condensed consolidated financial statements does not constitute Bank of Georgia Group PLC's statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements were prepared for the year ended 31 December 2018 under IFRS, as adopted by the European Union and reported on by BOGG's auditors and delivered to the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These interim condensed consolidated financial statements of Bank of Georgia Group PLC represent continuation of consolidated financial statements of BGEO Group PLC prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ("EU").

These interim condensed consolidated financial statements for the six months ended 30 June 2019 were prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgment at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates.

Assumptions and significant estimates in these interim condensed consolidated financial statements are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2018.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at and for the year ended 31 December 2018, signed and authorized for release on 27 March 2019.

These interim condensed consolidated financial statements are presented in thousands of Georgian Lari ("GEL"), except per share amounts, which are presented in Georgian Lari, and unless otherwise noted.

The interim condensed consolidated financial statements are unaudited, reviewed by the auditors and their review conclusion is included in this report.

Going concern

The Board of Directors of BOGG has made an assessment of the Group's ability to continue as a going concern and is satisfied that it has the resources to continue in business for a period of at least 12 months from the date of approval of the interim condensed consolidated financial statements. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern for the foreseeable future. Therefore, the interim condensed consolidated financial statements continue to be prepared on the going concern basis.

   3.     Summary of Significant Accounting Policies 

The accounting policies and methods of computation applied in the preparation of these interim condensed consolidated financial statements are consistent with those disclosed in the annual consolidated financial statements of the Group as at and for the year ended 31 December 2018, except for the adoption of new standards effective as of 1 January 2019.

The nature and the effect of these changes are disclosed below.

Adoption of IFRS 16

The Group has adopted IFRS 16 from the mandatory adoption date of 1 January 2019. The Group has applied the new standard using a modified retrospective approach with no initial application effect on retained earnings as at 1 January 2019. As a result, the Group did not restate comparative amounts for the year prior to the first adoption date. The standard was applied to contracts that were previously identified as leases in accordance with IAS 17 and IFRIC 4.

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rates as of 1 January 2019. The weighted average incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 5%.

Right-of-use asset was measured on transition at an amount equal to the lease liability, adjusted by the amount of any prepaid amounts recognized immediately before the date of initial application. As a result, the Group did not recognize any transition effect on its retained earnings on 1 January 2019.

The effect of transition to IFRS 16 on the Group's financial statements was as follows:

 
                                          Effect of 
                                          transition 
                                          to IFRS 16 
                                        ------------ 
 Right of use assets                          89,869 
 Prepayments reclassified to right 
  of use assets                             (14,352) 
 Lease liability                              75,517 
 

The below table shows the reconciliation between the operating lease commitments disclosed by the Group as at 31 December 2018 and the Lease liabilities recognized under the new standard as at 1 January 2019.

 
 Lease liabilities recognised as 
  at 1 January 2019                                            75,517 
 Effect of discounting (using the incremental borrowing 
  rate as at 1 January 2019)                                   56,055 
 Recognition exemption for: 
   - Short-term leases                                            729 
   - Leases of low-value assets                                   191 
 Operating lease commitment at 31 
  December 2018 as disclosed in the 
  Group's consolidated financial statements                   132,492 
                                                             ======== 
 

Lease contracts

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group considers the commencement date of the lease the date on which the lessor makes an underlying asset available for use to the Group. If the lease contract contains several lease components, the Group allocates the consideration in the contact to each lease component on the basis of their relative stand-alone prices and accounts for them separately.

The Group's leasing activities include the leases of service centres, ATM spaces and warehouses. Lease payments are fixed in most cases. The contacts don't generally carry extension or termination options for the lease term and do not impose any covenants.

   3.     Summary of Significant Accounting Policies (continued) 

Adoption of IFRS 16 (continued)

Recognition of right of use assets and lease liability

Until the 2018 financial year, leases of property and equipment were classified as either finance or operating leases. Payments made under operating leases were charged to profit or loss on a straight-line basis over the period of the lease.

Under the new standard, the Group recognizes a right of use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimated amount for dismantling costs, if any. The right of use asset is subsequently depreciated using the straight-line method over the lease term. The Group applies the cost model to right of use assets, except for those assets that meet the definition of investment property, in which case the revaluation model is applied. As at 30 June 2019, there were no right of use assets meeting the definition of investment property.

The lease liability is initially measured at the present value of the future lease payments discounted using the Group's incremental borrowing rate.

The lease liability is subsequently measured at amortized cost using the effective interest method.

Recognition exemptions

The Group applies the recognition exemptions on lease contracts for which the lease term ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Modifications of lease contracts

If the lease contract is modified by either changing the scope of the lease, or the consideration for a lease that was not part of the original terms and conditions of the lease, the Group determines whether the modification results in:

   --               a separate lease; or 
   --               a change in the accounting for the existing lease. 

The Group accounts for a lease modification as a separate lease when both of the following conditions are met:

-- the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

-- the consideration for the lease increases commensurate with the stand-alone price for the increase in scope and any adjustments to that stand-alone price reflect the circumstances of the particular contract.

For the lease modifications that are not accounted as separate leases, the Group re-measures the lease liability by:

-- decreasing the carrying amount of the right of use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease. The Group recognizes in profit or loss any gain or loss relating to the partial or full termination of the lease; or

-- making a corresponding adjustment to the right of use asset for all other lease modifications.

Amendments effective from 1 January 2019

IAS 12, Income Taxes

The amendment to IAS 12 clarifies that the income tax consequences (if any) of dividends as defined in IFRS 9 (i.e. distributions of profits to holders of equity instruments in proportion to their holdings) must be recognised:

   --               at the same time as the liability to pay those dividends is recognised; and 

-- in profit or loss, other comprehensive income, or the statement of changes in equity according to where the entity originally recognised the past transactions or events that generated the distributable profits from which the dividends are being paid.

The amendment did not have material effect on Group's interim condensed consolidated financial statements.

   4.     Discontinued Operations 

In 2018 the Group classified the Investment Business as disposal group held for distribution and its results of operations were reported under "discontinued operations" as a single amount in the consolidated income statement. As a result, discontinued operations were further adjusted to reflect the whole Investment Business classification as disposal group held for distribution.

On 29 May 2018 the Demerger became effective and the Investment Business was distributed to the shareholders of the Group. For details refer to Note 1 and Note 15.

Below are presented income statement line items of the Group excluding intra-group elimination attributable to discontinued operations:

 
                                                          Period ended 
                                                             29 May 
                                                              2018 
                                                         ------------- 
   Net insurance premiums earned                                42,954 
   Net insurance claims incurred                              (24,945) 
                                                         ------------- 
 Gross insurance profit                                         18,009 
                                                         ------------- 
 
   Healthcare and pharma revenue                               326,655 
   Cost of healthcare and pharma services                    (225,159) 
                                                         ------------- 
 Gross healthcare and pharma profit                            101,496 
                                                         ------------- 
 
   Real estate revenue                                          47,787 
   Cost of real estate                                        (38,708) 
                                                         ------------- 
 Gross real estate profit                                        9,079 
                                                         ------------- 
 
   Utility and energy revenue                                   53,999 
   Cost of utility and energy                                 (15,635) 
                                                         ------------- 
 Gross utility and energy profit                                38,364 
                                                         ------------- 
 
 Gross other profit                                             15,678 
 
  Revenue                                                      182,626 
                                                         ------------- 
 
   Salaries and other employee benefits                       (54,711) 
   Administrative expenses                                    (38,109) 
   Other operating expenses                                    (3,828) 
 Operating expenses                                           (96,648) 
                                                         ------------- 
 
 EBITDA                                                         85,978 
                                                         ------------- 
 
 Net gains from disposal of investment businesses               90,653 
 Depreciation and amortisation                                (15,192) 
 Net foreign currency gain                                      12,421 
 Interest income                                                 8,854 
 Interest expense                                             (34,623) 
                                                         ------------- 
 Net operating income before non-recurring items and 
  impairment                                                   148,091 
                                                         ------------- 
 
   Impairment charge on insurance premiums receivable, 
    accounts receivable, other assets and provisions           (5,078) 
 
   Net non-recurring items                                    (31,690) 
                                                         ------------- 
 
 Profit before income tax expense                              111,323 
 
   Income tax expense                                          (1,186) 
 
 Profit for the period                                         110,137 
                                                         ============= 
 
   4.     Discontinued Operations (continued) 

The difference between profit for the year and profit from discontinued operations presented in consolidated income statements is due to intra-group eliminations in amount of GEL 2,238 net income for the year ended 31 December 2018.

Below are presented other comprehensive statement line items of the Group attributable to discontinued operations for the year ended 31 December 2018:

 
                                                                Period ended 
                                                                   29 May 
                                                                    2018 
                                                               ------------- 
 Other comprehensive loss 
   Other comprehensive loss from discontinuing operations 
    to be 
    reclassified to profit or loss in subsequent periods: 
      - Net change in fair value on investments in debt 
       instruments measured at FVOCI                                   (695) 
      - Realised loss on financial assets measured at FVOCI 
       reclassified to 
       the consolidated income statement                                 650 
      - Loss from currency translation differences                  (10,836) 
                                                               ------------- 
 Net other comprehensive loss from discontinued operations 
  to be reclassified to 
  profit or loss in subsequent periods                              (10,881) 
                                                               ------------- 
 
 Other comprehensive loss for the period from discontinued 
  operations                                                        (10,881) 
                                                               ------------- 
 
 Total comprehensive income for the period from discontinued 
  operations                                                          97,018 
                                                               ============= 
 
   5.     Restatement and Reclassification 

Changes in accounting policies

The Group has adopted IFRS 9 from the mandatory adoption date of 1 January 2018. As a result, in the annual consolidated financial statements of the Group as at and for the year ended 31 December 2018, the Group recognized the reinstatement effect of previously written-off gross loans to customers due to the change in write-off policy, both on retained earnings as at 1 January 2018 and throughout the consolidated income statement of the Group for the year ended 31 December 2018. However, the reinstatement effect was not recognized within the interim condensed consolidated financial statements of the Group as at and for the six months ended 30 June 2018. Therefore, the comparative amounts have been restated within these interim condensed consolidated financial statements of the Group as at and for the six months ended 30 June 2019.

Below are presented income statement line items of the Group affected by the reinstatement effect:

 
 Consolidated income statement for the        As previously   Effect    As currently 
  six months ended 30 June 2018                  reported      of the     reported 
                                                               change 
                                             --------------  --------  ------------- 
   Interest income calculated using EIR 
    method                                          629,570       378        629,948 
   Net foreign currency gain                         39,916   (1,339)         38,577 
   Expected credit loss /impairment charge 
    on 
    loans to customers                             (76,684)     6,473       (70,211) 
   Income tax expense                              (36,565)     (436)       (37,001) 
 

Change in the presentation of financial statements

As a result of the Demerger, the Group has updated certain line items' titles within these interim condensed consolidated financial statements of the Group as at and for the six months ended 30 June 2019, in order to be in compliance with the current common practice evidenced throughout the financial institutions.

Below are presented income statement line items of the Group affected by the change:

 
 Consolidated income statement for the       As previously   Reclassification   As reclassified 
  six months ended 30 June 2018                 reported 
                                            --------------  -----------------  ---------------- 
   Revenue                                         488,292          (488,292)                 - 
   Operating income                                      -            488,292           488,292 
 
   Operating income before cost of credit 
    risk                                           310,129          (310,129)                 - 
   Operating income before cost of risk                  -            310,129           310,129 
 
   Cost of credit risk                            (71,340)             71,340                 - 
   Cost of risk                                          -           (71,340)          (71,340) 
 
   6.     Segment Information 

The Group disaggregated revenue from contracts with customers by products and services for each of our segments, as the Group believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Group has aggregated the Investment Business segments and presented them as discontinued operations in one single segment.

For management purposes, the Group is organised into the following operating segments based on products and services as follows:

RB - Retail Banking (excluding Retail Banking of BNB) - principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfers and settlement services, and handling of customers' deposits for both individuals and legal entities, The Retail Banking business targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses;

CIB - Corporate and Investment Banking - comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients;

BNB - Comprising JSC Belarusky Narodny Bank, principally providing retail and corporate banking services in Belarus.

Other BB - Comprising of holding companies: providing compliance, governance services for the Group's operating businesses and several small corporate and social responsibility companies.

Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured in the same manner as profit or loss in the consolidated income statement.

Transactions between operating segments are on an arm's length basis in a similar manner to transactions with third parties.

The Group's operations are primarily concentrated in Georgia, except for BNB, which operates in Belarus.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total operating income during the six months ended 30 June 2019 and 30 June 2018.

   6.     Segment Information (continued) 

The following table presents the income statement and certain asset and liability information regarding the Group's operating segments as at and for the six months ended 30 June 2019:

 
                                   Retail     Corporate     BNB      Other    Eliminations    Group 
                                   banking    investment                                       Total 
                                               banking 
                                             -----------  --------  -------- 
Net interest income                 259,154       93,138    12,945     (686)            12     364,563 
Net fee and commission income        67,039       15,264     3,611     (478)            11      85,447 
Net foreign currency gain 
 (loss)                              31,309       28,771     8,734   (2,090)             -      66,724 
Net other (expense) income          (1,582)          994       314        55         (472)       (691) 
Operating income                    355,920      138,167    25,604   (3,199)         (449)     516,043 
                                 ----------  -----------  --------  --------  ------------  ---------- 
 
Operating expenses                (139,060)     (43,120)  (16,737)   (4,429)           449   (202,897) 
 
Profit from associates                  442            -         -         -             -         442 
 
Operating income (expense) 
 before cost of risk                217,302       95,047     8,867   (7,628)             -     313,588 
 
Cost of risk                       (65,930)      (8,398)   (2,977)     (824)             -    (78,129) 
 
Net operating income (loss) 
 before non-recurring items         151,372       86,649     5,890   (8,452)             -     235,459 
                                 ----------  -----------  --------  --------  ------------  ---------- 
 
Net non-recurring expense/loss      (3,220)      (1,176)      (63)   (3,638)             -     (8,097) 
 
Profit (loss) before income 
 tax                                148,152       85,473     5,827  (12,090)             -     227,362 
                                 ----------  -----------  --------  --------  ------------  ---------- 
 
Income tax expense                 (11,047)      (6,249)     (950)         -             -    (18,246) 
 
 
Profit (loss) for the period        137,105       79,224     4,877  (12,090)             -     209,116 
                                 ----------  -----------  --------  --------  ------------  ---------- 
 
Assets and liabilities 
 
Total assets                     10,252,786    5,082,924   809,108    84,196      (95,015)  16,133,999 
Total liabilities                 9,132,074    4,351,800   707,446   119,475      (95,015)  14,215,780 
 
Other segment information 
 
Property and equipment               34,850        3,738       693        44             -      39,325 
Intangible assets                    14,156        1,316       861         -             -      16,333 
                                 ----------  -----------  --------  --------  ------------  ---------- 
Capital expenditure                  49,006        5,054     1,554        44             -      55,658 
 
Depreciation & amortisation        (27,779)      (3,634)   (1,568)       (2)             -    (32,983) 
                                 ==========  ===========  ========  ========  ============  ========== 
 
   6.     Segment Information (continued) 

The following table presents the income statement and certain asset and liability information regarding the Group's operating segments as at and for the six months ended 30 June 2018:

 
                                               Banking Business 
                                                                                                                         ----------- 
                    Retail     Corporate      BNB       Other       Banking       Banking     Investment      Inter- 
                    banking    investment              Banking      Business      Business     Business      Business       Group 
                                banking                Business   Eliminations                             Eliminations      Total 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 Net interest 
  income             273,938       79,951     12,898         26             18      366,831            -          2,149      368,980 
 Net fee and 
  commission 
  income              55,292       12,554      4,780      (276)              7       72,357            -          (520)       71,837 
 Net foreign 
  currency 
  gain (loss)         14,929       16,903      7,459       (39)              -       39,252            -          (675)       38,577 
 Net other 
  income               4,770        4,873        309          -          (501)        9,451            -          (553)        8,898 
 Operating 
  income             348,929      114,281     25,446      (289)          (476)      487,891            -            401      488,292 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 
 Operating 
  expenses         (127,661)     (36,453)   (15,905)      (980)            476    (180,523)            -          1,665    (178,858) 
 
 Profit from 
  associates             695            -          -          -              -          695            -              -          695 
 
 Operating 
  income 
  (expense) 
  before 
  cost of risk       221,963       77,828      9,541    (1,269)              -      308,063                       2,066      310,129 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 
 Operating 
  income 
  (expense) 
  before 
  cost of risk       221,963       77,828      9,541    (1,269)              -      308,063            -          2,066      310,129 
 
 Cost of risk       (58,072)     (10,246)    (3,022)          -              -     (71,340)            -              -     (71,340) 
 
 Net operating 
  income (loss) 
  before 
  non-recurring 
  items              163,891       67,582      6,519    (1,269)              -      236,723            -          2,066      238,789 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 
 Net 
  non-recurring 
  (expense/loss) 
  income/gain       (29,073)     (11,144)      (706)    (6,072)              -     (46,995)            -            172     (46,823) 
 
 Profit (loss) 
  before income 
  tax expense 
  from 
  continuing 
  operations         134,818       56,438      5,813    (7,341)              -      189,728            -          2,238      191,966 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 
 Income tax 
  expense           (24,510)     (10,993)    (1,498)          -              -     (37,001)            -              -     (37,001) 
 
 Profit (loss) 
  for the period 
  from 
  continuing 
  operations         110,308       45,445      4,315    (7,341)              -      152,727            -          2,238      154,965 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 
 Profit (loss) 
  from 
  discontinued 
  operations               -            -          -          -              -            -      110,137        (2,238)      107,899 
 
 Profit (loss) 
  for the period     110,308       45,445      4,315    (7,341)              -      152,727      110,137              -      262,864 
                  ----------  -----------  ---------  ---------  -------------  -----------  -----------  -------------  ----------- 
 
 Assets and 
 liabilities 
 
 Total assets      9,571,500    4,559,037    680,550    137,203      (149,987)   14,798,303            -              -   14,798,303 
 Total 
  liabilities      8,455,246    3,955,420    595,287    144,064      (149,987)   13,000,030            -              -   13,000,030 
 
 Other segment 
  information 
 
 Property and 
  equipment           17,058        1,967        808          -              -       19,833      127,834              -      147,667 
 Intangible 
  assets               9,361        1,125        458         51              -       10,995          559              -       11,554 
 Capital 
  expenditure         26,419        3,092      1,266         51              -       30,828      128,393              -      159,221 
 
 Depreciation 
  & amortisation    (19,720)      (2,578)      (616)          -              -     (22,914)            -              -     (22,914) 
 
   7.     Cash and Cash Equivalents 
 
                                                        As at 
                                                 30 June       31 December 
                                             2019 (unaudited)      2018 
Cash on hand                                          474,800      502,060 
Current accounts with central banks, 
 excluding obligatory reserves                        204,892      298,788 
Current accounts with credit institutions             213,389      243,622 
Time deposits with credit institutions 
 with maturities of up to 90 days                      43,104      171,471 
Cash and cash equivalents                             936,185    1,215,941 
Less - Allowance for expected credit 
 loss                                                    (79)        (142) 
Cash and cash equivalents                             936,106    1,215,799 
 

As at 30 June 2019, GEL 233,667 (31 December 2018: GEL 316,083) was placed on current and time deposit accounts with internationally recognised OECD banks and central banks that are the counterparties of the Group in performing international settlements. The Group earned up to 0.68% interest per annum on these deposits (31 December 2018: up to 3.00%). Management does not expect any losses from non-performance by the counterparties holding cash and cash equivalents, and there are no material differences between their book and fair values.

During the period expected credit recovery recognized on cash and cash equivalents amounted GEL 63 (30 June 2018: expected credit loss of GEL 35).

   8.     Amounts Due from Credit Institutions 
 
                                                   As at 
                                            30 June       31 December 
                                        2019 (unaudited)      2018 
Obligatory reserves with central 
 banks                                         1,676,487    1,244,885 
Time deposits with maturities of 
 more than 90 days                                16,601       43,484 
Deposits pledged as security for 
 open commitments                                  5,298            - 
Inter-bank loan receivables                        7,067       17,586 
Amounts due from credit institutions           1,705,453    1,305,955 
                                                          =========== 
Less - Allowance for expected credit 
 loss                                              (752)        (739) 
Amounts due from credit institutions           1,704,701    1,305,216 
                                                          =========== 
 

Obligatory reserves with central banks represent amounts deposited with the NBG and National Bank of the Republic of Belarus (the "NBRB"). Credit institutions are required to maintain cash deposits (obligatory reserve) with the NBG and with the NBRB, the amount of which depends on the level of funds attracted by the credit institution. The Group's ability to withdraw these deposits is restricted by regulation. The Group earned up to 0.50% interest on obligatory reserves with NBG and NBRB for the years ended 30 June 2019 (31 December 2018: 1.00%).

As at 30 June 2019, inter-bank loan receivables include GEL 7,067 (31 December 2018: GEL 17,586) placed with non-OECD banks.

During the period expected credit loss recognized on amounts due from credit institutions amounted GEL 13 (30 June 2018: expected credit loss of GEL 124).

   9.     Investment Securities 
 
                                                As at 
                                         30 June       31 December 
                                     2019 (unaudited)      2018 
Investment securities measured at 
 FVOCI - debt instruments                   1,894,171    2,018,061 
Investment securities designated 
 as at FVOCI - equity investments               2,567          956 
Investment securities                       1,896,738    2,019,017 
 
 
                                                     As at 
                                             30 June       31 December 
                                         2019 (unaudited)      2018 
Georgian ministry of Finance treasury 
 bonds*                                 830,887                 927,594 
Georgian ministry of Finance treasury 
 bills**                                73,467                  100,111 
Certificates of deposit of central 
 banks                                  83,782                   71,156 
Other debt instruments***               906,035                 919,200 
Investment securities measured at 
 FVOCI - debt instruments               1,894,171             2,018,061 
 

* GEL 342,456 was pledged for short-term loans from the NBG (31 December 2018: GEL 573,517).

** GEL 57,152 was pledged for short-term loans from the NBG (31 December 2018: Nil).

*** GEL 484,895 was pledged for short-term loans from the NBG (31 December 2018: GEL 674,616).

Other debt instruments as at 30 June 2019 mainly comprises bonds issued by the European Bank for Reconstruction and Development of GEL 283,878 (31 December 2018: GEL 249,659), GEL-denominated bonds issued by The Netherlands Development Finance Company of GEL 163,688 (31 December 2018: 163,454), GEL-denominated bonds issued by Black Sea Trade and Development Bank of GEL 146,609 (31 December 2018: GEL 136,504), GEL-denominated bonds issued by International Finance Corporation GEL 110,539 (31 December 2018: GEL 110,545), and GEL-denominated bonds issued by Asian Development Bank of GEL 65,008 (31 December 2018: GEL 65,145).

During the period expected credit loss recognised on investment securities measured at FVOCI - debt instruments amounted GEL 1,727 (30 June 2018: expected credit loss of GEL 703), which was mainly due to the increase in gross carrying value for the period.

   10.   Loans to Customers and Finance Lease Receivables 
 
                                                    As at 
                                             30 June       31 December 
                                         2019 (unaudited)      2018 
Commercial loans                                3,579,098    2,956,446 
Consumer loans                                  1,958,767    1,876,888 
Micro and SME loans                             2,328,948    2,129,215 
Residential mortgage loans                      2,826,778    2,549,453 
Gold - pawn loans                                  84,202       80,770 
Loans to customers at amortised cost, 
 gross                                         10,777,793    9,592,772 
Less - Allowance for expected credit 
 loss                                           (333,540)    (311,843) 
Loans to customers at amortised cost, 
 net                                           10,444,253    9,280,929 
 
Finance lease receivables, gross                  138,313      110,087 
Less - Allowance for expected credit 
 loss                                             (2,856)      (1,648) 
Finance lease receivables, net                    135,457      108,439 
 
Loans and advances to customers at 
 FVTPL                                                  -        8,379 
 
Total loans to customers and finance 
 lease receivables                             10,579,710    9,397,747 
 
   10.   Loans to Customers and Finance Lease Receivables (continued) 

As at 30 June 2019, loans to customers carried at GEL 554,990 (31 December 2018: GEL 357,342) were pledged for short-term loans from the NBG.

Allowance for loan impairment

Gross loans and impairment by stages of impairment are as follows:

 
                                    30 June 2019 (unaudited) 
                                                    Purchased 
                         Stage     Stage    Stage    or credit 
                           1         2        3      impaired     Total 
Commercial loans       2,960,836  332,329  278,424       7,509   3,579,098 
Residential mortgage 
 loans                 2,556,456  131,648  112,526      26,148   2,826,778 
Consumer loans         1,715,457  109,253  126,723       7,334   1,958,767 
Micro and SME loans    2,089,316   97,493  140,282       1,857   2,328,948 
Gold - pawn loans         78,617      780    4,805           -      84,202 
Loans to customers, 
 gross                 9,400,682  671,503  662,760      42,848  10,777,793 
 
 
                                     30 June 2019 (unaudited) 
                                                      Purchased 
                        Stage     Stage      Stage     or credit 
                           1         2         3       impaired     Total 
Commercial loans        (9,083)   (2,619)  (171,845)       (550)  (184,097) 
Residential mortgage 
 loans                    (523)     (147)    (7,980)     (1,676)   (10,326) 
Consumer loans         (16,883)   (7,558)   (60,690)       (296)   (85,427) 
Micro and SME loans    (14,437)   (6,376)   (31,904)       (744)   (53,461) 
Gold - pawn loans          (15)       (4)      (210)           -      (229) 
Allowance for loan 
 impairment            (40,941)  (16,704)  (272,629)     (3,266)  (333,540) 
 
 
                                        31 December 2018 
                                                    Purchased 
                         Stage     Stage    Stage    or credit 
                           1         2        3      impaired     Total 
Commercial loans       2,379,160  327,830  242,419       7,037  2,956,446 
Residential mortgage 
 loans                 2,351,207   86,809   88,249      23,188  2,549,453 
Consumer loans         1,650,080  101,146  121,191       4,471  1,876,888 
Micro and SME loans    1,913,964   85,311  127,705       2,235  2,129,215 
Gold - pawn loans         75,483      541    4,746           -     80,770 
Loans to customers, 
 gross                 8,369,894  601,637  584,310      36,931  9,592,772 
 
 
                                         31 December 2018 
                                                      Purchased 
                        Stage     Stage      Stage     or credit 
                           1         2         3       impaired     Total 
Commercial loans        (6,119)   (5,552)  (156,384)       (523)  (168,578) 
Residential mortgage 
 loans                    (238)      (31)    (5,383)     (1,089)    (6,741) 
Consumer loans         (19,654)   (9,355)   (62,143)       (389)   (91,541) 
Micro and SME loans     (9,439)   (5,453)   (29,726)        (70)   (44,688) 
Gold - pawn loans          (12)         -      (283)           -      (295) 
Allowance for loan 
 impairment            (35,462)  (20,391)  (253,919)     (2,071)  (311,843) 
 
   10.   Loans to Customers and Finance Lease Receivables (continued) 

Allowance for loan impairment (continued)

Expected credit loss/impairment charge on loans to customers

 
                              For the six months ended 
                             30 June 2019  30 June 2018 
                              (unaudited)   (unaudited) 
Commercial loans                    8,044        12,365 
Consumer loans                     36,237        51,143 
Micro and SME loans                24,298         4,712 
Residential mortgage loans          3,917         1,991 
Gold - pawn loans                      57             - 
Expected credit loss               72,553        70,211 
 

During the six months ending 30 June 2019 loans to customers written off amounted GEL 70,980 (for the six months ending 30 June 2018: GEL 124,626 ) and recoveries of amounts previously written off amounted GEL 18,752 (for the six months ending 30 June 2018: GEL 18,518 ).

Concentration of loans to customers

As at 30 June 2019, the concentration of loans granted by the Group to the ten largest third party borrowers comprised GEL 988,990 accounting for 9% of the gross loan portfolio of the Group (31 December 2018: GEL 952,411 and 10% respectively). An allowance of GEL 80,247 (31 December 2018: GEL 45,658) was established against these loans.

As at 30 June 2019, the concentration of loans granted by the Group to the ten largest third party group of borrowers comprised GEL 1,309,414 accounting for 12% of the gross loan portfolio of the Group (31 December 2018: GEL 1,231,913 and 13% respectively). An allowance of GEL 4,386 (31 December 2018: GEL 43,687) was established against these loans.

As at 30 June 2019 and 31 December 2018, loans were principally issued within Georgia, and their distribution by industry sector was as follows:

 
                                                        As at 
                                                 30 June       31 December 
                                             2019 (unaudited)      2018 
Individuals                                         6,043,389    5,509,279 
Manufacturing                                       1,227,277    1,101,649 
Trade                                               1,181,332    1,032,155 
Real estate                                           542,344      436,450 
Construction                                          517,599      366,009 
Hospitality                                           256,185      301,415 
Service                                               207,787      128,535 
Transport & communication                             140,065      132,588 
Mining and quarrying                                  138,402      127,835 
Electricity, gas and water supply                      80,838       76,574 
Financial intermediation                               68,015       62,180 
Other                                                 374,560      326,482 
Loans to customers, gross                          10,777,793    9,601,151 
Less - Allowance for expected credit loss           (333,540)    (311,843) 
Loans to customers, net                            10,444,253    9,289,308 
 

Loans have been extended to the following types of customers:

 
                                                   As at 
                                            30 June       31 December 
                                        2019 (unaudited)      2018 
Private companies                              4,732,388    4,089,095 
Individuals                                    6,043,389    5,509,279 
State-owned entities                               2,016        2,777 
Loans to customers, gross                     10,777,793    9,601,151 
Less - Allowance for expected credit 
 loss                                          (333,540)    (311,843) 
Loans to customers, net                       10,444,253    9,289,308 
 
   11.    Client Deposits and Notes 

The amounts due to customers include the following:

 
                                                 As at 
                                          30 June       31 December 
                                      2019 (unaudited)      2018 
Time deposits                                4,514,369    4,061,604 
Current accounts                             4,341,247    4,072,249 
Client deposits and notes                    8,855,616    8,133,853 
 
Held as security against letters 
 of credit and guarantees (Note14)             115,609      125,393 
 

At 30 June 2019, amounts due to customers of GEL 807,360 (9%) were due to the ten largest customers (31 December 2018: GEL 962,322 (12%)).

Amounts due to customers include accounts with the following types of customers:

 
                                             As at 
                                      30 June       31 December 
                                  2019 (unaudited)      2018 
Individuals                              5,636,954    4,832,966 
Private enterprises                      2,821,497    2,760,667 
State and state-owned entities             397,165      540,220 
Client deposits and notes                8,855,616    8,133,853 
 

The breakdown of customer accounts by industry sector is as follows:

 
                                                As at 
                                         30 June       31 December 
                                     2019 (unaudited)      2018 
Individuals                                 5,636,954    4,832,966 
Trade                                         530,248      536,619 
Construction                                  490,040      572,628 
Financial intermediation                      396,845      397,638 
Government services                           379,167      508,410 
Transport & communication                     360,962      342,745 
Service                                       292,531      300,671 
Manufacturing                                 253,435      178,619 
Real estate                                   125,697      101,020 
Hospitality                                    77,484       40,216 
Electricity, gas and water supply              56,879       95,987 
Other                                         255,374      226,334 
Client deposits and notes                   8,855,616    8,133,853 
 
   12.   Amounts Owed to Credit Institutions 

Amounts due to credit institutions comprise:

 
                                                   As at 
                                            30 June       31 December 
                                        2019 (unaudited)      2018 
Borrowings from international credit 
 institutions                                  1,078,863      989,740 
Short-term loans from the National 
 Bank of Georgia                               1,001,496    1,118,957 
Time deposits and inter-bank loans               356,579      214,479 
Correspondent accounts                            93,140      118,692 
Other borrowings*                                143,414      133,830 
                                               2,673,492    2,575,698 
 
Non-convertible subordinated debt                287,027      419,181 
 
Amounts due to credit institutions             2,960,519    2,994,879 
 

* Other borrowings represent borrowings from JSC Georgia Capital on arm's length terms.

During the six months ended 30 June 2019, the Group paid up to 6.50% on US$ borrowings from international credit institutions (six months ended 30 June 2018: up to 5.96%). During the six months ended 30 June 2019, the Group paid up to 10.40% on Dollar subordinated debt (six months ended 30 June 2018: up to 9.26%).

Some long-term borrowings from international credit institutions are received upon certain conditions (the "Lender Covenants") that the Group maintains different limits for capital adequacy, liquidity, currency positions, credit exposures, leverage and others. At 30 June 2019 and 31 December 2018 the Group complied with all the Lender Covenants of the significant borrowings from international credit institutions.

   13.   Debt Securities Issued 

Debt securities issued comprise:

 
                                                     As at 
                                              30 June       31 December 
                                          2019 (unaudited)      2018 
Eurobonds and notes issued                       1,413,429    1,349,853 
Additional Tier 1 capital notes issued             289,701            - 
Local bonds                                         58,024       57,389 
Certificates of deposit                            376,085      323,172 
Debt securities issued                           2,137,239    1,730,414 
 

On 21 March 2019, JSC Bank of Georgia successfully priced inaugural US$ 100 million offering of 11.125% Additional Tier 1 Capital Perpetual Subordinated Notes callable after 5.25 years and on every subsequent interest payment date, subject to prior consent of the National Bank of Georgia (the "Notes"). The Notes are being issued in accordance with Regulation S and sold at an issue price of 100.00%.

   14.   Commitments and Contingencies 

Legal

Sai-invest

As at 30 June 2019, the Bank was engaged in a litigation proceeding with Sai-Invest LLC in relation to a deposit pledge in the amount of EUR 7 million used to reduce the outstanding loan of LTD Sport Invest towards JSC Bank of Georgia. The Bank's management is of the opinion that the probability of incurring material losses on this claim is low, and accordingly no provision has been made in these consolidated financial statements.

Rustavi Azoti

At 30 June 2019, the Bank was engaged in litigation proceedings in Tbilisi City Court with East-West United Bank S.A., Agrochim S.A. and Systema Holding Limited (claimants) in relation to foreclosure on security (movable and immovable property and intangible assets) through auction on a defaulted loan of Rustavi Azoti LLC. Claimants request reinstatement of the title to the property owned by Rustavi Azoti LLC and compensation of damages in the amount of around USD 93.6m. No provision has been made as the Bank's management believes that the claim is groundless and it is extremely unlikely that any significant loss will eventuate from this claim.

At 30 June 2019, BGEO Group Limited (former BGEO Group PLC), was engaged in litigation proceedings in the High Court of Justice of England and Wales (Commercial Court) with Roman Pipia (claimant), who asserts that BGEO Group Limited is liable to the claimant under Georgian law in relation to the loss of the Rustavi Azoti plant, which he alleges he formerly beneficially owned. The Bank had initiated the sale of collateral pledged by Rustavi Azoti LLC and its parent company to secure loans granted by the Bank following default by the borrowers in 2016. Based on the revised claim submitted in December 2018, the claimed amount is around USD 286.5m (alternatively USD 291m). No provision has been made as the Group believes that the claim is groundless and it is extremely unlikely that any significant loss will eventuate from this claim.

In the ordinary course of business, the Group and BOGG are subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group or BOGG.

Financial commitments and contingencies

As at 30 June 2019 and 31 December 2018 the Group's financial commitments and contingencies comprised the following:

 
                                                   As at 
                                            30 June       31 December 
                                        2019 (unaudited)      2018 
Credit-related commitments 
Guarantees issued                              1,123,051    1,015,566 
Undrawn loan facilities                          256,854      278,254 
Letters of credit                                 46,412       42,009 
                                               1,426,317    1,335,829 
 
Less - Cash held as security against 
 letters of credit and 
 guarantees (Note 11)                          (115,609)    (125,393) 
Less - Provisions                                (5,298)      (4,582) 
 
Operating lease commitments 
Not later than 1 year                              3,528       29,397 
Later than 1 year but not later than 
 5 years                                           1,845       74,341 
Later than 5 years                                   225       28,754 
                                                   5,598      132,492 
 
Capital expenditure commitments                    6,245        6,616 
 

During the period expected credit recovery recognized on financial guarantees and letter of credits amounted GEL 663 (30 June 2018: expected credit loss of GEL 2,852).

   15.   Equity 

Share capital

As at 30 June 2019, issued share capital comprised 49,169,428 common shares of BOGG (31 December 2018: 49,169,428 of BOGG), all of which were fully paid. Each share has a nominal value of one (1) British Penny. Shares issued and outstanding as at 30 June 2019 are described below:

 
                                         Number       Amount 
                                        of shares    of shares 
                                        Ordinary      Ordinary 
31 December 2017 (BGEO Group PLC)       39,384,712        1,151 
Replacement of BGEO as the Group's 
 parent                               (39,384,712)      (1,151) 
Establishement and share issue by 
 the new parent company                 39,384,714    4,375,378 
Capital reduction                                -  (4,373,910) 
Issue of share capital in course 
 of demerger                             9,784,716          322 
30 June 2018 (Bank of Georgia Group 
 PLC) (unaudited)                       49,169,430        1,790 
 
31 December 2018 (Bank of Georgia 
 Group PLC)                             49,169,428        1,618 
30 June 2019 (Bank of Georgia Group 
 PLC) (unaudited)                       49,169,428        1,618 
 

As part of the Demerger, Bank of Georgia Group PLC was established and on 18 May 2018 issued 39,384,712 additional ordinary shares at nominal value of GBP32 each in exchange for the entire issued capital of BGEO Group PLC and became the parent company of BGEO. On 23 May 2018 the Company undertook a planned reduction of capital to create distributable reserves for Bank of Georgia Group PLC.

Following the reduction of capital, the nominal value of the Company's ordinary shares was reduced to one (1) British Penny from thirty-two (32) British Pounds. As a result of the capital reduction, resources which became distributable to the shareholders were fully reclassified to retained earnings. The reduction of capital was a legal and accounting adjustment without any changes in assets and liabilities of the Group.

   15.   Equity (continued) 

Share capital (continued)

On 29 May 2018 as a result of the Demerger the Company distributed its investment in the Investment Business with a fair value of GEL 1,441,552 thousands to the shareholders of BOGG.

On 29 May 2018 BOGG issued additional 9,784,716 ordinary shares at nominal value of one (1) British Penny each.

Treasury shares

Treasury shares are held by the Group solely for the purpose of future employee share-based compensation.

The number of treasury shares held by the Group as at 30 June 2019 comprised 1,499,541 (31 December 2018: 1,543,281), with nominal amount of GEL 49 (31 December 2018: GEL 51).

Dividends

Shareholders are entitled to dividends in British Pounds Sterling.

On 17 May 2019, the Shareholders of Bank of Georgia Group PLC declared an final dividend for 2018 of Georgian Lari 2.55 per share. The currency conversion date was set at 31 May 2019, with the official GEL: GBP exchange rate of 3.5337, resulting in a GBP-denominated final dividend of 0.7216 per share. Payment of the total GEL 123,598 final dividends was received by shareholders on 28 June 2019.

On 9 July 2018, the Shareholders of Bank of Georgia Group PLC declared an interim dividend for 2018 of Georgian Lari 2.44 per share. The currency conversion date was set at 20 July 2018, with the official GEL: GBP exchange rate of 3.2167, resulting in a GBP-denominated final dividend of 0.7585 per share. Payment of the total GEL 122,199 final dividends was received by shareholders on 27 July 2018.

Earnings per share

 
                                                                 For the six months 
                                                                        ended 
                                                             30 June            30 June 
                                                         2019 (unaudited)   2018 (unaudited) 
Basic earnings per share 
   Profit for the period attributable to ordinary 
    shareholders of the Group                                     208,154            244,106 
   Profit for the period from continuing operations 
    attributable to 
    ordinary shareholders of the Group                            208,154            154,422 
   Profit for the period from discontinued operations 
    attributable to 
    ordinary shareholders of the Group                                  -             89,684 
   Weighted average number of ordinary shares 
    outstanding during the period                              47,846,288         41,047,494 
   Basic earnings per share                                        4.3505             5.9469 
   Earnings per share from continuing operations                   4.3505             3.7620 
   Earnings per share from discontinued operations                      -             2.1849 
 
 
                                                        For the six months 
                                                               ended 
                                                    30 June            30 June 
                                                2019 (unaudited)   2018 (unaudited) 
Diluted earnings per share 
Effect of dilution on weighted average 
 number of ordinary shares: 
     Dilutive unvested share options                     170,395            479,488 
Weighted average number of ordinary 
 shares adjusted for the effect of dilution           48,016,683         41,526,982 
Diluted earnings per share                                4.3350             5.8783 
Diluted earnings per share from continuing 
 operations                                               4.3350             3.7187 
Diluted earnings per share from discontinued 
 operations                                                    -             2.1596 
 
   16.   Net Interest Income 
 
                                                       For the six months ended 
                                                      30 June             30 June 
                                                  2019 (unaudited)    2018 (unaudited) 
 
 Interest income calculated using 
  EIR method                                               665,752             629,948 
    From loans to customers                                593,257             551,975 
    From investment securities                              68,448              61,511 
    From amounts due from credit institutions               10,656              16,462 
    Net loss on modification of financial 
     assets                                                (6,609)                   - 
 
 Other interest income                                      11,207               8,823 
    From finance lease receivable                           11,015               8,170 
    From loans and advances to customers 
     measured at FVTPL                                         192                 653 
 Interest Income                                           676,959             638,771 
 
 On client deposits and notes                            (135,964)           (118,686) 
 On amounts owed to credit institutions                   (95,683)            (93,518) 
 On debt securities issued                                (74,504)            (55,013) 
 On lease liability                                        (2,418)                   - 
 Interest Expense                                        (308,569)           (267,217) 
 
    Deposit insurance fees                                 (3,827)             (2,574) 
 
 Net Interest Income                                       364,563             368,980 
 
   17.   Net Fee and Commission Income 
 
                                         For the six months ended 
                                        30 June            30 June 
                                    2019 (unaudited)   2018 (unaudited) 
Settlements operations                       103,186             86,089 
Guarantees and letters of credit              11,220              8,568 
Cash operations                                6,611              6,047 
Currency conversion operations                 4,115                185 
Brokerage service fees                         1,895              2,078 
Advisory                                       1,225                955 
Other                                          2,304              2,083 
Fee and commission income                    130,556            106,005 
 
Settlements operations                      (36,856)           (28,339) 
Cash operations                              (3,816)            (2,229) 
Guarantees and letters of credit               (683)              (742) 
Insurance brokerage service fees             (1,129)            (2,066) 
Currency conversion operations                 (604)                (8) 
Advisory                                        (83)                  - 
Other                                        (1,938)              (784) 
Fee and commission expense                  (45,109)           (34,168) 
Net fee and commission income                 85,447             71,837 
 
   18.   Net Non-recurring Items 
 
                                                  For the six months ended 
                                                 30 June            30 June 
                                             2019 (unaudited)   2018 (unaudited) 
Demerger related expenses*                                  -           (30,284) 
Corporate social responsibility expense**                   -           (13,462) 
Termination benefits                                  (3,985)                  - 
Other                                                 (4,112)            (3,077) 
Net non-recurring expense/loss                        (8,097)           (46,823) 
 

* Demerger-related expenses comprise of: employee compensation expenses in amount of GEL 21,141 including acceleration of share-based compensation of Investment Business employees, Demerger costs recognised in the consolidated income statement in amount of GEL 7,736 and other Demerger-related expenses in amount of GEL 1,407.

** Corporate social responsibility comprises the one-off project to support the fibre-optic broadband infrastructure development in rural Georgia.

   19.   Income Tax Expense 

The corporate income tax expense comprises:

 
                                            For the six months ended 
                                           30 June             30 June 
                                       2019 (unaudited)    2018 (unaudited) 
Current income expense                         (16,201)             (4,553) 
Deferred income tax expense                     (2,045)            (33,634) 
Income tax expense                             (18,246)            (38,187) 
 
Income tax expense attributable to 
 continuing operations                         (18,246)            (37,001) 
Income tax expense attributable to 
 a discontinued operation (Note 4)                    -             (1,186) 
 

On 12 June 2018, an amendment to the current corporate taxation model applicable to financial institutions, including banks and insurance businesses, became effective. The change implies a zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings starting from 1 January 2023, instead of 1 January 2019 as previously enacted in 2016.

   20.   Fair Value Measurements 

Fair value hierarchy

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed by level of the fair value hierarchy:

 
 
30 June 2019 (unaudited)           Level     Level      Level       Total 
                                      1        2           3 
Assets measured at fair 
 value 
Total investment properties             -          -     178,764     178,764 
      Land                              -          -       7,060       7,060 
      Residential properties            -          -      81,748      81,748 
      Non-residential properties        -          -      89,956      89,956 
Investment securities                   -  1,895,587       1,151   1,896,738 
Other assets - derivative 
 financial assets                       -     30,479           -      30,479 
Other assets - trading 
 securities owned                  13,968          -           -      13,968 
Loans to customers and                  -          -           -           - 
 finance lease receivables 
 
Assets for which fair values 
 are disclosed 
Cash and cash equivalents               -    936,106           -     936,106 
Amounts due from credit 
 institutions                           -  1,704,701           -   1,704,701 
Loans to customers and 
 finance lease receivables              -          -  10,833,356  10,833,356 
 
Liabilities measured at 
 fair value 
Other liabilities - derivative 
 financial liabilities                  -     21,913           -      21,913 
 
Liabilities for which fair 
 values are disclosed 
Client deposits and notes               -  8,853,355           -   8,853,355 
Amounts owed to credit 
 institutions                           -  2,464,444     496,075   2,960,519 
Debt securities issued                  -  2,034,178     108,991   2,143,169 
Lease liability                         -    100,172           -     100,172 
 
 
 
31 December 2018                   Level    Level      Level      Total 
                                     1        2          3 
Assets measured at fair 
 value 
Total investment properties            -          -    151,446    151,446 
      Land                             -          -     15,094     15,094 
      Residential properties           -          -     71,434     71,434 
      Non-residential properties       -          -     64,918     64,918 
Investment securities                  -  2,018,622        395  2,019,017 
Other assets - derivative 
 financial assets                      -     35,557          -     35,557 
Other assets - trading 
 securities owned                  4,652          -          -      4,652 
Loans to customers and 
 finance lease receivables             -          -      8,379      8,379 
 
Assets for which fair values 
 are disclosed 
Cash and cash equivalents              -  1,215,799          -  1,215,799 
Amounts due from credit 
 institutions                          -  1,305,216          -  1,305,216 
Loans to customers and 
 finance lease receivables             -          -  9,359,858  9,359,858 
 
Liabilities measured at 
 fair value 
Other liabilities - derivative 
 financial liabilities                 -     11,569          -     11,569 
 
Liabilities for which fair 
 values are disclosed 
Client deposits and notes              -  8,129,794          -  8,129,794 
Amounts owed to credit 
 institutions                          -  2,560,563    434,316  2,994,879 
Debt securities issued                 -  1,373,161    380,775  1,753,936 
 
   20.   Fair Value Measurements (continued) 

Fair value hierarchy (continued)

The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.

Derivative financial instruments

Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps, forward foreign exchange contracts and option contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations, as well as standard option pricing models. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and implied volatilities.

Trading securities and investment securities

Trading securities and a certain part of investment securities are quoted equity and debt securities. Investment securities valued using a valuation technique or pricing models consist of unquoted equity and debt securities. These securities are valued using models which sometimes only incorporate data observable in the market and at other times use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.

Fair value of financial instruments that are not carried at fair value in the financial statements

Set out below is a comparison by class of the carrying amounts and fair values of the Group's financial instruments. The table does not include the fair values of non-financial assets and non-financial liabilities, or fair values of other smaller financials assets and financial liabilities, fair values of which are materially close to their carrying values.

 
                             Carrying      Fair     Unrecognised  Carrying     Fair     Unrecognised 
                               value       value        gain        value      value        loss 
                               2019        2019        (loss)        2018       2018        2018 
                                                        2019 
Financial assets 
Cash and cash equivalents      936,106     936,106             -  1,215,799  1,215,799             - 
Amounts due from 
 credit institutions         1,704,701   1,704,701             -  1,305,216  1,305,216             - 
Loans to customers 
 and finance lease 
 receivables                10,579,710  10,833,356       253,646  9,389,368  9,359,858      (29,510) 
 
Financial liabilities 
Client deposits 
 and notes                   8,855,616   8,853,355         2,261  8,133,853  8,129,794         4,059 
Amounts owed to 
 credit institutions         2,960,519   2,960,519             -  2,994,879  2,994,879             - 
Debt securities 
 issued                      2,137,239   2,143,169       (5,930)  1,730,414  1,753,936      (23,522) 
Lease liability                100,172     100,172             -          -          -             - 
Total unrecognised 
 change in unrealised 
 fair value                                              249,977                            (48,973) 
 

The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the consolidated financial statements.

Assets for which fair value approximates carrying value

For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate financial instruments.

Fixed rate financial instruments

The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.

   21.   Maturity Analysis of Financial Assets and Liabilities 

The table below shows an analysis of financial assets and liabilities according to their contractual maturities, except for current accounts as described below.

 
                                                          30 June 2019 (unaudited) 
 
                             On        Up to      Up to       Up to       Up to      Up to      Over       Total 
                            Demand    3 Months   6 Months     1 Year     3 Years    5 Years    5 Years 
Financial assets 
Cash and cash 
 equivalents                894,057     42,049          -            -          -          -          -     936,106 
Amounts due 
 from credit 
 institutions             1,669,828     12,253        460        7,491      3,216        200     11,253   1,704,701 
Investment 
 securities                 753,503    944,896      7,850       17,946     62,367     79,912     30,264   1,896,738 
Loans to customers 
 and finance 
 lease receivables                -  1,756,180    705,898    1,528,557  2,778,643  1,672,617  2,137,815  10,579,710 
Total                     3,317,388  2,755,378    714,208    1,553,994  2,844,226  1,752,729  2,179,332  15,117,255 
 
Financial liabilities 
Client deposits 
 and notes                1,757,155  1,675,299    726,605    3,759,822    833,744     59,692     43,299   8,855,616 
Amounts owed 
 to credit institutions      93,140  1,309,802    120,126      329,826    579,567    315,774    212,284   2,960,519 
Debt securities 
 issued                           -    206,801      3,363      608,343     64,918  1,253,814          -   2,137,239 
Lease liability                   -      5,241      5,240       10,513     35,041     21,435     22,702     100,172 
Total                     1,850,295  3,197,143    855,334    4,708,504  1,513,270  1,650,715    278,285  14,053,546 
Net                       1,467,093  (441,765)  (141,126)  (3,154,510)  1,330,956    102,014  1,901,047   1,063,709 
Accumulated 
 gap                      1,467,093  1,025,328    884,202  (2,270,308)  (939,352)  (837,338)  1,063,709 
 
 
                                                              31 December 2018 
 
                            On        Up to      Up to       Up to        Up to       Up to      Over       Total 
                           Demand    3 Months   6 Months     1 Year      3 Years     5 Years    5 Years 
Financial assets 
Cash and cash 
 equivalents             1,047,670    168,129          -            -            -          -          -   1,215,799 
Amounts due 
 from credit 
 institutions            1,234,277     50,292        976        7,880            -          -     11,791   1,305,216 
Investment securities      751,662    943,600     42,499       37,052      141,608     69,601     32,995   2,019,017 
Loans to customers 
 and finance 
 lease receivables               -  1,419,736    642,309    1,393,967    2,500,443  1,342,016  2,099,276   9,397,747 
Total                    3,033,609  2,581,757    685,784    1,438,899    2,642,051  1,411,617  2,144,062  13,937,779 
 
Financial liabilities 
Client deposits 
 and notes               1,528,349  1,524,125    732,660    3,602,837      654,676     52,372     38,834   8,133,853 
Amounts owed 
 to credit institutions    118,691  1,269,126     91,295      189,155      710,208    454,901    161,503   2,994,879 
Debt securities 
 issued                          2     60,976    175,965      173,740      566,129    753,602          -   1,730,414 
Total                    1,647,042  2,854,227    999,920    3,965,732    1,931,013  1,260,875    200,337  12,859,146 
Net                      1,386,567  (272,470)  (314,136)  (2,526,833)      711,038    150,742  1,943,725   1,078,633 
Accumulated 
 gap                     1,386,567  1,114,097    799,961  (1,726,872)  (1,015,834)  (865,092)  1,078,633 
 

The Group's capability to discharge its liabilities relies on its ability to realise equivalent assets within the same period of time. In the Georgian marketplace, where most of the Group's business is concentrated, many short-term credits are granted with the expectation of renewing the loans at maturity. As such, the ultimate maturity of assets may be different from the analysis presented above. To reflect the historical stability of current accounts, the Group calculates the minimum daily balance of current accounts over the past two years and includes the amount in the up to 1 year category in the table above. The remaining current accounts are included in the On demand category.

   21.   Maturity Analysis of Financial Assets and Liabilities (continued) 

The Group's principal sources of liquidity are as follows:

   --           deposits; 
   --           borrowings from international credit institutions; 
   --           inter-bank deposit agreements; 
   --           debt issues; 
   --           proceeds from sale of securities; 
   --           principal repayments on loans; 
   --           interest income; and 
   --           fees and commissions income. 

As at 30 June 2019 client deposits and notes amounted to GEL 8,855,616 (31 December 2018: GEL 8,133,853) and represented 62% (31 December 2018: 63%) of the Group's total liabilities. These funds continue to provide a majority of the Group's funding and represent a diversified and stable source of funds. As at 30 June 2019 amounts owed to credit institutions amounted to GEL 2,960,519 (31 December 2018: GEL 2,994,879) and represented 21% (31 December 2018: 23%) of total liabilities. As at 30 June 2019 debt securities issued amounted to GEL 2,137,239 (31 December 2018: GEL 1,730,414) and represented 15% (31 December 2018: 13%) of total liabilities. As at 30 June 2019 lease liability amounted to GEL 100,172 (31 December 2018: n/a) and represented 1% (31 December 2018: n/a) of total liabilities.

In the Board's opinion, liquidity is sufficient to meet the Group's present requirements.

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled, except for current accounts which are included in up to 1 year time bucket, noting that respective contractual maturity may expand over significantly longer periods:

 
                                  30 June 2019 (unaudited)                 31 December 2018 
 
                                Less        More        Total        Less        More       Total 
                                 than        than                     than        than 
                                1 Year      1 Year                   1 Year      1 Year 
Cash and cash equivalents        936,106          -      936,106    1,215,799          -   1,215,799 
Amounts due from credit 
 institutions                  1,690,032     14,669    1,704,701    1,293,425     11,791   1,305,216 
Investment securities          1,724,195    172,543    1,896,738    1,774,813    244,204   2,019,017 
Loans to customers and 
 finance lease receivables     3,990,635  6,589,075   10,579,710    3,456,012  5,941,735   9,397,747 
Accounts receivable 
 and other loans                   3,688          -        3,688        2,849          -       2,849 
Prepayments                       32,132      3,894       36,026       27,170     17,124      44,294 
Inventories                       11,748          -       11,748       12,818        474      13,292 
Investment properties                  -    178,764      178,764            -    151,446     151,446 
Right of use assets                    -    105,874      105,874            -          -           - 
Property and equipment                 -    358,921      358,921            -    344,059     344,059 
Goodwill                               -     33,351       33,351            -     33,351      33,351 
Intangible assets                      -     93,515       93,515            -     83,366      83,366 
Income tax assets                  4,866        214        5,080       19,328        123      19,451 
Other assets                     135,162     14,071      149,233      107,562     18,446     126,008 
Assets held for sale              40,544          -       40,544       42,408          -      42,408 
Total assets                   8,569,108  7,564,891   16,133,999    7,952,184  6,846,119  14,798,303 
                                                     ----------- 
 
Client deposits and 
 notes                         7,918,881    936,735    8,855,616    7,387,971    745,882   8,133,853 
Amounts owed to credit 
 institutions                  1,852,894  1,107,625    2,960,519    1,668,267  1,326,612   2,994,879 
Debt securities issued           818,507  1,318,732    2,137,239      410,683  1,319,731   1,730,414 
Lease liability                   20,993     79,179      100,172            -          -           - 
Accruals and deffered 
 income                           25,974      8,774       34,748       41,287      5,776      47,063 
Income tax liabilities               950     29,411       30,361        1,009     27,846      28,855 
Other liabilities                 97,125          -       97,125       64,966          -      64,966 
Total liabilities             10,735,324  3,480,456   14,215,780    9,574,183  3,425,847  13,000,030 
                                                     ----------- 
 
Net                          (2,166,216)  4,084,435    1,918,219  (1,621,999)  3,420,272   1,798,273 
 
   22.   Related Party Disclosures 

In accordance with IAS 24 "Related Party Disclosures", parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. All transactions with related parties disclosed below have been conducted on an arm's length basis.

The volumes of related party transactions, outstanding balances at the year-end, and related expenses and income for the year are as follows:

 
                                30 June 2019 (unaudited)    30 June 2018 (unaudited) 
                                                 Key                         Key 
                                              management                  management 
                                Associates    personnel*    Associates    personnel* 
Loans outstanding at 1 
 January, gross                           -         1,756        17,053         2,913 
Loans issued during the 
 period                                   -         2,529             -         1,184 
Loan repayments during 
 the period                               -       (2,087)             -       (1,836) 
Other movements**                         -           337      (17,053)       (1,607) 
Loans outstanding at 30 
 June, gross                              -         2,535             -           654 
Loans outstanding at 30 
 June, net                                -         2,535             -           654 
 
Interest income on loans                  -            93           529            56 
Expected credit loss                      -          (14)             -             - 
 
Deposits at 1 January                   809        14,748         2,005        38,842 
Deposits received during 
 the period                             712        20,791             -         9,435 
Deposits repaid during 
 the period                               -       (2,955)         (763)         (930) 
Other movements**                     (401)       (1,105)         (502)      (32,135) 
Deposits at 30 June                   1,120        31,479           740        15,212 
 
Interest expense on deposits              -         (447)           (2)         (222) 
Other income                              -             -             -             3 
Deferred income                           -             -             -             - 
Real estate revenue                       -             -             -             - 
 

* Key management personnel includes members of BOGG's Board of Directors and key executives of the Group.

**Other movements during the six months ended 30 June 2018 mainly relate to the Demerger.

Compensation of key management personnel comprised the following:

 
                                          For the six months ended 
                                         30 June            30 June 
                                     2019 (unaudited)   2018 (unaudited) 
Salaries and other benefits                     5,084              4,735 
Share-based payments compensation 
 *                                             26,712             54,893 
Cash compensations                                  -              2,273 
Social security costs                              11                 35 
Total key management compensation              31,807             61,936 
 

* During the six months ended 30 June 2019, share-based compensation included an amount of GEL 3,985 (during the six months ended 30 June 2018: GEL 13,557) for key management personnel reflected in the non-recurring items and nil reflected in discontinued operations (during the six months ended 30 June 2018: GEL 23,278).

Key management personnel do not receive cash-settled compensation, except for fixed salaries. The major part of the total compensation is share-based. The number of key management personnel at 30 June 2019 was 16 (30 June 2018: 13).

   23.   Capital Adequacy 

The Group maintains an actively managed capital base to cover risks inherent to the business. The adequacy of the Group's capital is monitored using, among other measures, the ratios established by the NBG in supervising the Bank.

During the year ended 30 June 2019, the Bank and the Group complied in full with all its externally imposed capital requirements.

The primary objectives of the Group's capital management are to ensure that the Bank complies with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years.

NBG (Basel III) capital adequacy ratio

In December 2017, the NBG adopted amendments to the regulations relating to capital adequacy requirements, including amendments to the regulation on capital adequacy requirements for commercial banks, and introduced new requirements on the determination of the countercyclical buffer rate, on the identification of systematically important banks, on determining systemic buffer requirements and on additional capital buffer requirements for commercial banks within Pillar 2. The NBG requires the Bank to maintain a minimum total capital adequacy ratio of risk-weighted assets, computed based on the Bank's standalone special purpose financial statements prepared in accordance with NBG regulations and pronouncements, based on Basel III requirements. As at 30 June 2019 and 31 December 2018, the Bank's capital adequacy ratio on this basis was as follows:

 
                                        As at 
                                 30 June       31 December 
                             2019 (unaudited)      2018 
Core Tier 1 capital                 1,385,932    1,379,953 
Additional Tier 1 capital             286,870            - 
Tier 1 capital                      1,672,802    1,379,953 
Tier 2 capital                        423,425      502,355 
Total capital                       2,096,227    1,882,308 
 
Risk-weighted assets               12,558,785   11,338,660 
 
Total capital ratio                     16.7%        16.6% 
 
Min Requirement                         16.1%        15.9% 
 

24.

24. Events after the Reporting Period

GEL 28 million 5-year loan agreement with EBRD

On 12 July 2019, JSC Bank of Georgia attracted a c. GEL 28 million loan from the European Bank for Reconstruction and Development ("EBRD") with a maturity of 5 years. EBRD obtained the local currency funds through a private placement of GEL-denominated bonds arranged by Galt & Taggart - a wholly owned brokerage subsidiary of Bank of Georgia Group PLC.

JSC Bank of Georgia signs GEL 100 million 5-year loan agreement with IFC

On 1 August 2019, JSC Bank of Georgia and the International Finance Corporation ("IFC") signed a GEL 100 million loan agreement with a maturity of 5 years. IFC will raise the local currency funds through a private placement of GEL-denominated bonds to be arranged by Galt & Taggart - a wholly owned brokerage subsidiary of Bank of Georgia Group PLC.

JSC Bank of Georgia signs US$50 million Trade Finance Facility with Citi

On 24 July 2019, JSC Bank of Georgia has signed a one-year US$50 million Trade Finance Facility ("the Facility") with Citi. The Facility been arranged under the Continuing Agreement for Reimbursement of Trade Advances ("CARTA"), signed with Citi in 2011, and is the third successful transaction between Citi and Bank of Georgia under this agreement.

GLOSSARY

-- Alternative performance measures (APMs) In this announcement the management uses various APMs, which they believe provide additional useful information for understanding the financial performance of the Group. These APMs are not defined by International Financial Reporting Standards, and also may not be directly comparable with other companies who use similar measures. We believe that these APMs provide the best representation of our financial performance as these measures are used by management to evaluate the Group's operating performance and make day-to-day operating decisions;

-- Cost of funds Interest expense of the period divided by monthly average interest bearing liabilities;

-- Cost of credit risk Expected loss/impairment charge for loans to customers and finance lease receivables for the period divided by monthly average gross loans to customers and finance lease receivables over the same period;

-- Cost to income ratio Operating expenses divided by operating income;

-- Interest bearing liabilities Amounts due to credit institutions, client deposits and notes, and debt securities issued;

-- Interest earning assets (excluding cash) Amounts due from credit institutions, investment securities (but excluding corporate shares) and net loans to customers and finance lease receivables;

-- Leverage (times) Total liabilities divided by total equity;

-- Liquid assets Cash and cash equivalents, amounts due from credit institutions and investment securities;

-- Liquidity coverage ratio (LCR) High quality liquid assets (as defined by NBG) divided by net cash outflows over the next 30 days (as defined by NBG);

-- Loan yield Interest income from loans to customers and finance lease receivables divided by monthly average gross loans to customers and finance lease receivables;

-- NBG liquidity ratio Daily average liquid assets (as defined by NBG) during the month divided by daily average liabilities (as defined by NBG) during the month;

-- NBG (Basel III) Common Equity Tier I capital adequacy ratio Common Equity Tier I capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

-- NBG (Basel III) Tier I capital adequacy ratio Tier I capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

-- NBG (Basel III) Total capital adequacy ratio Total regulatory capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

-- Net interest margin (NIM) Net interest income of the period divided by monthly average interest earning assets excluding cash for the same period;

-- Non-performing loans (NPLs) The principal and interest on loans overdue for more than 90 days and any additional potential losses estimated by management;

-- NPL coverage ratio Allowance for expected credit loss/impairment loss of loans and finance lease receivables divided by NPLs;

-- NPL coverage ratio adjusted for discounted value of collateral Allowance for expected credit loss/impairment loss of loans and finance lease receivables divided by NPLs (discounted value of collateral is added back to allowance for expected credit loss/impairment loss);

-- Operating leverage Percentage change in operating income less percentage change in operating expenses;

-- Return on average total assets (ROAA) Profit for the period divided by monthly average total assets for the same period;

-- Return on average total equity (ROAE) Profit for the period attributable to shareholders of the Group divided by monthly average equity attributable to shareholders of the Group for the same period;

-- NMF Not meaningful

COMPANY INFORMATION

Bank of Georgia Group PLC

Registered Address

84 Brook Street

London W1K 5EH

United Kingdom

www.bankofgeorgiagroup.com

Registered under number 10917019 in England and Wales

Secretary

Link Company Matters Limited

65 Gresham Street

London EC2V 7NQ

United Kingdom

Stock Listing

London Stock Exchange PLC's Main Market for listed securities

Ticker: "BGEO.LN"

Contact Information

Bank of Georgia Group PLC Investor Relations

Telephone: +44(0) 203 178 4052; +995 322 444444 (9282)

E-mail: ir@bog.ge

Auditors

Ernst & Young LLP

25 Churchill Place

Canary Wharf

London E14 5EY

United Kingdom

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS13 8AE

United Kingdom

Please note that Investor Centre is a free, secure online service run by our Registrar, Computershare,

giving you convenient access to information on your shareholdings.

Investor Centre Web Address - www.investorcentre.co.uk.

Investor Centre Shareholder Helpline - +44 (0)370 873 5866

Share price information

Shareholders can access both the latest and historical prices via the website

www.bankofgeorgiagroup.com

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR BXLLFKVFFBBL

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